MASTER 
NEGATIVE 

NO.  94-82085- 12 


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Author: 


Portland  cement 
association 

Title: 

Cost  accounting 


Place: 


Chicago 

Date: 

1917 


MASTER    NEGATIVE   # 


COLUMBIA  UNIVERSITY  LIBRARIES 
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ORIGINAL  MATERIAL  AS  FILMED  -    EXISTING  BIBLIOGRAPHIC  RECORD 


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Cost  acooiirtbing;  being  a  uniform  accounting 
system  as  applied  to  the  cement  industry,  pub»  by 
the  Portleuid  cement  association  from  data  secured 
and  comp.  by  the  Committee  on  uniform  cost  accoun- 
tin^,     Chica,-:©,  Portland  cement  association,  1917 
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LIBRARY 
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; 


Cost  Accounting 

Being  a  Uniform  Accounting  System 
as  Applied  to  the 

Cement  Industry 


Pdblisbed  Br  the 

PORTLAND  CEMENT  ASSOCIATION 

FBOM    DATA 

SECURED  AND  COMPILED 

BT   TBB 

COMMITTEE  ON  UNIFORM  COST  ACCOUNTING 


PORTLAND  CEMENT  ASSOCIATION 

CHICAGO.    ILLINOIS 
1917 


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C33. 


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INTRODUCTION 

To  meet  the  varying  conditions  prevalent  in  different 
plants,  the  Committee  on  Uniform  Cost  Accounting  has 
thought  it  best  to  make  some  changes  in  the  uniform 
system  adopted  some  years  ago.  These  changes,  however, 
effect  only  the  detail,  and  not  the  principles  as  first  ad- 
vocated and  adopted.  Therefore,  it  has  been  thought 
best  to  revise  the  original  book  on  Cost  Accounting,  and 
this  revision  (as  formally  approved  and  adopted  at  the 
Fall  meeting  held  in  Chicago,  September  10-13,  1917)  is 
represented  in  the  pages  following. 

Much  of  the  text  in  this  revised  edition  may  seem 
primary,  and  it  is  intended  that  this  book  should  be  a 
primer.  It  is  written  with  the  idea  of  answering  the  many 
questions  confronting  the  Cost  Accountant  on  his  visits  to 
the  plants  of  member  companies,  explaining  the  system. 
This  detail  is  further  necessary  if  the  system  as  adopted  is  to 
be  installed  in  the  various  plants  by  the  Chief  Accountant 
or  Bookkeeper;  if  it  is  desired,  however,  to  have  the  Cost 
Accountant  of  the  Association  supervise  the  installation 
of  the  system  in  any  plant,  his  services  are  at  the  disposal 
of  member  companies.  From  the  set  of  pro-forma  accounts 
of  the  "A.  B.  C.  Cement  Co.,"  (which  accompanies  this 
book),  it  is  thought  any  accountant  or  bookkeeper  will 
be  able  to  install  the  system  without  difficulty. 

Much  thought  and  time  has  been  devoted  by  the  Com- 
mittee to  the  preparation  and  devisation  of  this  uniform 
system,  and  it  is  believed  that  its  utilization  by  member 
companies  will  result  in  uniform  treatment  of  every  item 
of  cost  and  true  costs  will  be  ascertained  monthly. 

The  Committee  on  Uniform  Cost  Accounting. 
Chicago,  September,  1917. 


Contents 


J 


INTRODUCTION 

I.    Purpose  and  Value  of  Cost  Accounts _ H 

Need  and  value  of  proper  system;  Objections  to  Install- 
ing a  Cost  System;  Divisions  of  Accounting  System;  Man- 
ufacturing Costs;  Commercial  Costs,  etc. 

II.    Chart  OP  Accounts .-_ 14 

(a)     Index. 
(6)     Chart  of  Ledgers. 

(c)     Articulation  of  Accounts;  relation  of  Accounts  from 
Raw  Material  to  Finished  product. 


III.    Books  and  Forms  Required 

General  Office: 

Books. 

Binders. 

Forms. 

Mill  Office: 

Books. 

Binders. 

Forms. 


17 


IV.    Books  and  Forms;  Description —     19 

General  Office: 

Cash  Book. 

General  Ledger. 

Customer's  Ledger. 

Creditor's  Ledger. 

Purchase  Journal. 

General  Journal. 

Sales  Record  and  Debit  Memos. 

Sack  Record  and  Credit  Memos. 

Voucher  Check. 

Binders. 

Mill  Office: 

Cost  Ledger. 
Pay  Roll. 
Coal  Record. 
Gypsum  Record. 
Stores  Ledger. 
Distribution  Sheets. 


V.    General  ^Ledger  Accounts 
Assets. 
Liabilities. 


27 


Trading  Accounts: 

Trading  Account  (Summary). 
Cement  Sales. 
Sack  Sales. 
Cement  Inventory. 

Profit  and  Loss  Accounts: 

Profit  and  Loss  (Summary). 

Sack  Cost. 

Packing  and  Loading. 

Sack  Handling. 

Selling  Expenses. 

General  Expenses. 

Financial  Expenses. 

Extraneous  Income  Accounts: 

Employes  Dwellings. 

Lighting. 

Commissary. 

Interest  on  Investments. 

Sundry  Sales. 

Manufacturing  Accounts: 

Operating: 

Raw  Material  No.  1. 
Raw  Material  No.  2. 
Raw  Grinding. 
Clinker  Burning. 
Clinker  Grinding. 
Mill  Overhead. 
Reserves. 
Finished  Cement. 

Auxiliary: 

Power,  Light  and  Water. 

Coal  Preparing. 

Machine,    Blacksmith    and    Carpenter 

Shops. 
Floating  Gang. 
Railroad  and  Switching. 


VII.    Labor  Accounts 

Operating  Labor. 


33 


Pay  Roll: 


Pay  Periods. 
Monthly  Summary. 
Distribution: 


VI.    Definition  of  Accounts. 

Labor: 


32 


Operating. 
Repairs. 

Materials : 

Operating. 

Repairs. 
Fuel. 


Direct  Labor. 
Repair  Labor. 
Indirect  Labor  (Floating  Gang). 


Work  Tickets. 


Labor  on  Repair  Parts  for  Stock: 

Method  of  Recording. 
Final  Cost. 
Distribution. 


VIII.    Material  Accounts —    36 

Sub-divisions: 

Operating  Supplies  and  Repair  Parts. 

Coal. 

Gypsum. 

Packages. 

Materials  Purchased: 

Authority  for  purchase. 

Checking  Invoices  for  payment. 

Discounts. 

Stores  Ledger. 

Method  of  Recording  purchases. 

Materials  Disbursed: 

Proper  requisition  necessary. 
Judgment  to  be  used  as  to  issuance  of  stores  or 
repair  parts  in  the  absence  of  proper  requisition. 
Materials  returned  to  Stores. 
Materials  drawn  for  Work  in  Process  for  stock. 

Stores  Inventory: 

Verification  of  Inventory  periodically. 
Method  of  valuing  Inventory. 


Coal: 


Coal  Record. 

Method  of  recording. 

Freight. 

Deliveries,  how  treated. 

Monthly  distribution. 

Inventory. 


Gypsum. 


Illl 


IX,    Plant  Overhead  and  Indirect  Expense _ _.    41 

Direct  and  Indirect  Expense. 

Insurance. 

Taxes. 

Depreciation. 

Depletion. 

Contingencies. 

Shut-down  Period  Expenses. 

X.    Monthly  Closing  of  Manufacturing  and  Operating  Accounts    43 

Procedure    before   closing;    Posting;    Reason  for    closing 
AvxiUary  Accounts  first. 

Auxiliary  Accounts: 

Power,  Light  and  Water. 

Coal  Preparing. 

Machine,  Blacksmith  and  Carpenter  Shop. 

Floating  Gang. 

Railroad  and  Switching. 

Operating  Accounts: 

Raw  Material  No.  1. 
Raw  Material  No.  2. 
Raw  Grinding. 
Clinker  Burning. 
Clinker  Grinding. 
Mill  Overhead. 
Reserves. 
Finished  Cement. 

AnniMl  Closing: 

Profit  and  Loss  Accounts. 

Net  Profit. 

Surplus. 

Dividends. 


I 


XI.    Monthly  Statements;  their  preparation  ._ 

Trading  and  Profit  and  Loss  Statement. 

Balance  Sheet. 

Supplementary  Statements: 

Summary  Statement  of  Costs. 
Summary  Statement  of  Operation  Costs. 
Summary  Statement  of  Cement  Costs  in  Bulk, 
Cloth  and  Paper. 

Cost  Sheets: 

Raw  Material  No.  1. 
Raw  Material  No.  2. 
Mill  Costs. 


49 


XII.    Deferred  Charges 54 

Shut-down  Period: 
Repairs. 
Expenses. 

XIIL    Forms 56 

Illustrations  of  various  Books  and  Forms  used  in  con- 
nection with  the  system  as  outlined. 

XIV.    Package  Accounting;  Two  Methods _ 86 

(a)     Package  cost,  in  excess  of  ten  cents,  to  be  included 
in  costs. 

(6)     Total  package  costs  to  be  included  in  costs. 

XV.    Procedure  in  Opening  Accounts  and  Installing  System 92 

General  Ledger;  Cost  Ledger;  Use  of  Various  Forms,  etc. 

XVI.    Depreciation,  Depletion  and  Appraisals _ 96 

Foreword:    Extracts  from  various  authorities  on  Deprecia- 
tion, etc. 

''Depreciation  and  Reserves:^' 

Geo.  Wilkinson,  C.  P.  A.,  New  York. 

"Principles  of  Depreciation:^' 

Prof.  E.  A.  Saliers,  Yale,  Lehigh. 

"Depreciation:" 

J.  Lee  Nicholson,  C.  P.  A.  (Federal  Trade  Com- 
mission) . 

"Manufacturing  Cost  and  Accounts:" 

A.  Hamilton  Church,  Consulting  and  Efficiency 
Engineer,  Haskins  &  Sells,  New  York. 

"Accounting,  Theory  and  Practice:" 

R.  H.  Montgomery,  C.  P.  A.,  New  York. 

"Depreciation:" 

Edward  N.   Hurley,   Chairman    (1916)    Federal 
Trade  Commission. 

Comments  on  the  foregoing  articles: 

0.  K.  Goree,  Cost  Accountant,  Portland  Cement 
Association. 

Mortality  Table,  as  approved  by  the  Association. 

The  Appraisal  of  Manufacturing  Plants:" 
Chas.  W.  McKay. 

Plant  Appraisal  Form. 

Depreciation  Schedule. 

0 


Cost  Accounting 
I 

Purpose  and  Value  of  Cost  Accounts 

Need  and  Value  of  Proper  System: 

In  this  age  of  keen  competition  it  is  imperative  that  the  manufacturer  know 
true  costs  of  production ;  unless  he  does,  the  ultimate  result  is  two-fold :  he  may 
sell  his  product  at  less  than  cost  of  production,  thus  entailing  a  loss  of  capital, 
or  he  may  fix  an  arbitrary  or  "  rule-of-thumb "  sale  price  far  above  that  of  his 
competitor  (who  may  know  his  true  costs)  thereby  entailing  a  subsequent  loss 
of  sales.  In  either  event,  if  such  practices  were  continued,  the  industrial  grave- 
yard would  be  his  end.  Hundreds  of  idle,  dismantled  or  wrecked  plants  through- 
out the  country  bear  mute  evidence  to  this  lack  of  proper  accounting  methods. 
Dun  and  Bradstreet,  in  reviewing  the  causes  which  led  up  to  the  failures  for  the 
year  1915,  attribute  70%  of  such  industrial  disasters  to  improper  accounting 
metJiods. 

Since  there  still  may  be  an  inclination  in  some  quarters  to  consider  cost 
accounts  as  red  tape,  let  us  consider  the  reasons  why  complete  and  accurate  cost 
accounts  are  essential  to  the  proper  administration  of  a  corporation  and  the 
proper  operation  of  its  property. 

A  recent  pamphlet  issued  by  Mr.  Hurley  of  the  Federal  Trade  Commission, 
entitled  ' '  Fundamentals  of  a  Cost  System  for  Manufacturers,  ' '  clearly  sets 
forth  the  need  of  proper  accounting  methods: 

"Formerly  the  necessity  for  the  determination  of  true  manufacturing 
costs  was  not  as  imperative  as  it  is  today.  Margins  between  cost  and  selling 
price  in  most  lines  were  larger.  Costs  could  be  ignored  except  in  a  general 
way,  and  a  good  return  still  made  on  the  investment;  but  today  margins 
of  profit  in  most  lines  of  trade  are  very  much  narrower  than  formerly,  and 
the  necessity  for  the  most  efficient  management  and  closest  analysis  is  felt 
as  never  before. 

"There  are  a  number  of  objections  in  the  minds  of  business  men  who 
have  not  installed  cost  systems  to  taking  the  matter  up.  One  of  these  is 
the  feeling  that  exists  in  the  minds  of  so  many  that  their  business  is  unique 
and  different  from  any  other  that  no  system  could  be  devised  which  would 
give  them  true  costs  It  is  unquestionably  true  that  some  lines  of  manufac- 
ture (the  cement  industry  for  instance)  lend  themselves  more  readily  to 
the  installation  of  a  cost  system  than  others,  but  it  is  also  true  that  no  line 
of  manufacture  is  so  complicated  that  a  system  cannot  be  devised  which 
will  give  reasonably  accurate  results. 

' '  The  most  common  objection  is  that  of  the  cost  of  installation  and  the 
expense  of  operation.  Many  manufacturers  are  of  the  opinion  that  a  cost 
system  means  an  interminable  amount  of  detail  and  red  tape  and  the 
assistance  of  a  number  of  extra  clerks.  It  is  true,  in  many  cases,  that  some 
extra  labor  may  be  required,  but  not  to  the  extent  that  the  manufacturer 
fears.  There  is  in  nearly  every  office  that  is  not  systematized  sufficient 
unnecessary  work  done  to  cut  the  extra  work  down  to  a  minimum,  and, 
in  fact,  in  some  cases,  where  an  office  has  been  systematized,  it  has  not 
been  necessary  to  employ  any  extra  help  at  all.  If  the  manufacturer  will 
look  upon  a  cost  sj'stem  as  an  investment  which  he  expects  to  produce  for 
him  a  fair  return  in  the  same  manner  that  an  investment  in  improved  ma- 

11 


chinery  would,  the  objection  as  to  the  expense  is  not  a  valid 
Other  business  men  are  of  the  opinion  that  they  do  not  need 
because  they  know  what  their  goods  cost.  They  may,  and 
them  do  have  ^n  approximate  idea  of  what  their  goods  cost, 
number  of  instances  this  supposed  knowledge  is  based  on 
guesses  in  advance  as  to  the  time  necessary  to  do  the  work,  or 
spent  on  the  work  after  it  is  done.  Guessing  is  unsafe  and 
practice." 


one.  •  •  • 
a  cost  system 
a  number  of 
but  in  a  large 
the  foremen's 
as  to  the  time 
poor  business 


There  is  another  phase  of  cost  accounting  that  has  produced  a  very  serious 
objection  in  the  minds  of  manufacturers;  namely,  too  much  "system." 

"Systems"  have  been  installed  in  factories  where  it  cost  twenty  cents  to 
secure  a  bolt  worth  one-eighth  of  one  cent,  and  eighteen  cents  to  get  a  proper 
cutting  tool  for  a  job  on  which  the  labor  cost  was  only  twenty-two  cents.  The 
net  result  of  such  a  "system"  is  a  mass  of  statistical  data,  non-provable  and 
not  articulated  with  nor  connected  up  with  the  financial  books. 

One  of  the  great  advantages  of  properly  kept  manufacturing  costs  is  their 
value  as  an  index  of  operating  efficiency.  Estimated  costs  tell  what  the  plant 
should  do,  but  actual  cost  figures  tell  what  is  realy  being  done,  and  are  valuable 
accordingly.  With  properly  prepared  cost  figures  the  relative  efficiency  of  the 
various  departments  of  the  plants  may  be  watched  and  compared.  The  current 
results  obtained  in  each  department  may  be  checked  against  those  obtained 
in  the  past,  thereby  showing  increases  in  efficiency,  or  the  reverse,  and 
the  results  of  improvements  in  practice  and  equipment.  A  constant  study  of 
properly  prepared  cost  figures  will  help  to  bring  to  light  dishonest  and  improper 
management,  and  will  enable  standards  to  be  set  for  the  less  efficient  depart- 
ments, based  on  what  actually  has  been  done  in  departments  that  are  being 
properly  and  efficiently  administered.  In  other  words,  a  complete  and  properly 
kept  cost  accounting  system  will  be  found  to  exercise  the  important  and  produc- 
tive function  of  helping  to  lower  costs,  and  holding  them  at  the  lowest  practicable 
level. 

There  is  one  more  point  that  must  be  urged  in  favor  of  a  cost  accounting 
system.  The  officials  of  a  corporation  are  trustees  of  the  property  that  has 
been  turned  over  to  them  by  the  stockholders,  and  as  such  must  render  a  proper 
account  of  their  stewardship.  The  raw  materials,  semi-finished  product  and 
finished  product  of  a  manufacturing  plant  constitute  a  large  and  important 
part  of  the  assets  of  the  company.  Such  assets  must  be  correctly  stated  with 
respect  to  price,  as  well  as  quantity,  and  the  only  way  to  insure  this  correct 
statement  is  to  show  exactly  what  they  have  cost.  In  order  to  make  a  proper 
accounting  of  the  property  of  a  company  the  officials  must  know  what  has  been 
done  with  that  property.  An  estimate  or  a  guess  is  not  sufficient.  Understated 
manufacturing  costs  mean  overstated  profits,  and  when  these  overstated  profits 
are  disbursed  in  the  form  of  dividends,  the  capital  of  the  corporation  has  been 
depleted  and  the  officials  are,  at  least,  morally  liable. 

Cost  accounts  fall  logically  into  two  main  divisions.  The  first  of  these  is 
the  manufacturing  cost,  which  is  the  cost  of  producing  a  completed  and  mar- 
ketable article  or  material,  and  delivering  it,  as  required,  to  the  carrier  for 
transportation  to  the  customers.  In  other  words,  manufacturing  cost  comprises 
a  complete  record  of  the  work  performed  by  the  factor>'.    The  second  item  is 


the  overhead  cost  of  administering  and  financing  the  company  and  marketing 
its  product.  These  two  items  together  make  up  the  commercial  cost  of  the 
product,  and  give  a  figure  at  which  the  product  must  be  sold  in  order  to  come 
out  even. 

The  simplest  and  most  generally  effective  way  of  keeping  track  of  the  manu- 
facturing costs  of  a  cement  company  is  on  the  basis  of  each  month's  production. 
This  requires  that  each  department  shall  be  charged  with  all  labor  and  material 
used,  and  all  expense  incurred  during  the  month.  The  total  charges  against 
each  department  for  the  month,  divided  by  the  number  of  barrels,  tons  or  unit 
of  output  produced,  will  give  the  month's  unit  cost  for  the  product  of  the 
department.  These  monthly  charges  may  be  consolidated  by  departments  at 
the  end  of  the  year,  and  divided  by  the  yearly  output,  in  order  to  arrive  at  the 
average  yearly  costs  both  for  departments  and  finished  product.  This  will  have 
the  effect  of  equalizing  fiuctuations  due  to  variations  in  operation  at  different 
seasons. 

In  our  detailed  consideration  of  this  subject  we  will  take  up,  first  of  all,  the 
question  of  manufacturing  costs.  For  the  sake  of  having  some  concrete  basis 
on  which  to  work  we  will  consider  the  case  of  a  cement  company  operating  on 
the  dry  process,  quarrying  two  raw  materials,  and  using  coal  for  fuel.  We  will 
assume  that  the  operation  of  the  plant  is  directed  by  a  superintendent,  and  that 
an  independent  organization,  reporting  to  the  chief  accounting  officer  in  the 
general  office,  is  in  charge  of,  and  responsible  for,  the  accounting  end  of  the 
work,  including  the  handling  of  the  Stores  Department,  and  if  possible,  all 
the  timekeeping  work.  It  should  be  understood  that  no  attempt  will  be  made 
to  lay  down  any  hard  and  fast  rules,  and  if  any  rules  are  formulated,  it  will 
be  done  only  with  the  object  of  expounding  and  illustrating  the  fundamental 
principles  on  which  they  are  based. 

Since  the  object  of  any  system  of  cost  accounts  is  to  afford  information,  we 
must  decide,  first  of  all,  what  information  we  need.  We  must  know  the  cost  of 
our  finished  cement.  Our  Clinker  Inventory  is  liable  to  fluctuate  widely  from 
time  to  time,  owing  to  the  fact  that  in  some  months  more  clinker  is  likely  to 
be  produced  than  is  ground  into  cement,  while  in  other  months  the  quantity 
of  clinker  produced  will  be  much  less  than  the  quantity  consumed.  Therefore, 
in  order  to  equalize  matters,  and  to  have  our  cement  costs  reflect  the  results  of 
current  operations,  we  should  arrange  to  carry  our  clinker  in  inventory,  and  in 
order  to  do  this  we  must  know  what  our  clinker  costs.  The  same  condition 
obtains  with  respect  to  raw  materials.  It  may  be  that  the  raw  materials  for 
the  entire  year's  consumption  are  quarried  during  the  summer.  It  would  not 
be  right  to  charge  our  clinker  costs  for  the  summer  months  with  the  cost  of 
producing  the  entire  year's  supply  of  raw  material.  Therefore  our  raw  ma- 
terials should  also  be  put  into  inventory  as  produced  and  carried  until  consumed, 
and  we  must  know  how  much  they  cost.  In  other  words,  it  is  essential  that 
we  should  have  separate  costs  on  each  of  our  raw  materials,  and  on  our  clinker, 
and  on  our  cement,  as  each  of  these  commodities  is  an  individual  item  in  our 
inventory  accounts,  and  each  occupies  a  distinct  place  as  an  asset  of  the  com- 
pany. Furthermore,  separate  costs  on  these  items  are  highly  desirable  for 
comparative  purposes  and  to  aid  in  maintaining  the  efficiency  of  the  departments 
under  review. 


13 


II 

Chart  of  Accounts 

INDEX 


GROUP 

GENERAL  LEDGER 

COST  LEDGER 

Mandatofy 

SugiMtMl 

OptkNMl 

Mudttory 

Optland 

1  Absetb: 

11  Cash  in  Banks. 

12  Petty  Cash. 

13  Bills  Receivable. 

14  Accounts  Receivable. 

15  Inventories. 

16  Investments. 

17  Plant  Accounts. 

18  Deferred  Assets. 

19  Sundry. 

111-119 

141-149 
151-159 

171-179 
181-189 

1511-1599 

2  LlABIUTIES: 

21  Accrued  Items. 

22  Bills  Payable. 

23  Accounts  Payable. 

24  Reserves. 

25  Capital  Accounts. 

211-219 
221-229 
231-239 
241-249 
251-259 

2411-2499 
2511-2599 

3  Traddvo: 

31  Trading  Account. 

32  Sales. 

33  Cement  Inventory. 

321-329 

4  Pbofit  &  Loss: 

41  Profit  &  Loss  Acct. 

42  Sack  Cost. 

43  Packing  &  Loading. 

44  Sack  Handling. 

45  Selling  Expenses. 

46  General  Expenses. 

47  Financial  Expenses. 

48  Extraneous  Accounts. 

49  Sundry. 

421-429 

451-459 
461-469 
471-479 
481^89 

431-439 
441-449 

4311-4399 
4411-4499 

5  Raw  Material  : 

51  Raw  Material  No.  1. 

52  Raw  Material  No.  2. 

511-519 
521-529 

5111-5199 
5211-5299 

6  Manufacturing  : 

61  Raw  Grinding  Dept. 

62  Clinker  Burning  Dept. 

63  Clinker  Grinding  Dept. 

64  Mill  Overhead. 

65  Reserves. 

66  Finished  Cement. 

« 

611-619 
621-629 
631-639 
641-649 
651-659 

6111-6199 
6211-6299 
6311-6399 
6411-6499 
6511-6599 

7  Auxiliary: 

71  Power,  Light  A  Water. 

72  Coal  Preparing. 

73  Machine  Shop. 

74  Blacksmith  Shop. 

75  Carpenter  Shop. 

76  Floating  Gang. 

77  R.  R  and  Switching. 

711-719 
721-729 
731-739 
741-749 
751-759 
761-769 
771-779 

7111-7199 
7211-7299 

8  Farm: 

81  Expenses. 

82  Receipts. 

811-819 
821-829 

8111-8199 
8211-8299 

Detail  of  the  above  Chart  of  Accounts  is  shown  in  a  separate  booklet,  which  see. 

14 


CHART  OF  LEDGERS 


FINANCIAL  RECORDS 

General  Ledger 
Special,  Property  and  Controlling  Accounts, 
Assets,  Liability,  Trading  and  Profit  and  Loss 
Accounts,  Manufacturing  and  Operating  Accounts. 

Customer's 

Ledger 
(Accounts 
Receivable) 

Creditor's 

Ledger 

(Accounts 

Payable) 

COST  RECORDS 

Stores 
Ledger 

• 

Cost  Ledger 

Raw 

Material 

No.  1 

Raw 

Materia 
No.  2 

Mill 

and 

Auxiliary 

Trial  Balance 
From  which  is  Prepared 

Stores 
Inventory 

• 

Cost  Sheets 

Raw 

Material 

No.  1 

Raw 

Materia 

No.  2 

Mill 

16 


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to 

Cm 

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Books  and  Forms  Required 


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General  Office: 
Books: 


General  Cash  Book  (bound). 
General  Ledger  (bound). 
Customers'  Ledger  (loose  leaf). 
Creditors'  Ledger  (loose  leaf). 
Purchase  Journal  (bound). 
General  Journal  (bound). 


Binders  for 


Forms: 


Distribution  Sheets: 

Pay  Roll. 

Repair  Labor. 

Materials  and  supplies  (Operating  and  Repair). 

Miscellaneous : 

Power. 

Coal. 

Gypsum. 

Coal  Preparing. 

Floating  Gang. 
Reserves. 

Pay  Rolls. 

Monthly  Statements: 

Trading  and  Profit  &  Loss  Account. 

Balance  Sheets. 

Monthly  Statement  of  Costs. 

Monthly  Statement  of  Operations. 

Monthly  Statement  of  Costs  in  Bulk,  Cloth  -and 
Paper. 

Cost  Sheets. 

Sales  Record  and  Debit  Memos. 

Sack  Returns  and  Credit  Memos. 

Trading  and  Profit  and  Loss  Account. 

Balance  Sheet. 

Monthly  Statement  of  Costs. 

Monthly  Statement  of  Operations. 

Monthly  Statement  of  Costs  in  Bulk,  Cloth  or  Paper. 

Voucher  Checks. 

IT 


1« 


Mill  Office: 
Books: 


Forms: 


Pay  Roll. 

Cost  Ledger  (if  kept  at  Mill). 

Stock  Ledger  (cards). 

Coal  Record. 

Gypsum  Record. 

Cost  Sheet — Quarry. 
Cost  Sheet— Mill. 
Distribution  Sheets. 
Pay  Roll. 
Repair  Labor. 

Materials  and  Supplies  (Operating  and  Repair). 
Miscellaneous: 
Power. 
Coal. 
Gypsum. 
Coal  Preparing. 
Floating  Gang. 
Railroad  and  Switching. 
Reserves. 

Requisition  Blanks. 

Work  Tickets  (for  Machine,  Blacksmith  and  Carpenter  Shops 
and  Floating  Gang). 

Analysis  Sheets: 

Repair  Labor. 

Floating  Gang. 

Supplies  and  Material  (operating  and  repair). 

Envelope  for  Job  Costs. 


Binders: 


For  above  forms. 


18 


IV 
Books  and  Forms — Description 

GENERAL  OFFICE 

Cash  Book: 

This  should  preferably  be  a  bound  book  of  about  500  pages.  See  Form  No. 
1,  which  is  self-explanatory.  A  separate  book  for  receipts  and  payments  may 
be  utilized  if  desired. 

As  modem  systems  do  not  contemplate  the  use  of  check  books  or  check 
registers,  the  Cash  Book  becomes  at  once  the  stub  of  the  check  and  check  regis- 
ter. Voucher  check,  (see  Form  No.  11)  instead  of  the  obsolete  voucher,  is 
recommended.  These  can  be  made  up  in  pads  of  100  each.  All  monies  received, 
however  small,  should  be  deposited  and  total  deposits  extended  in  proper  bank 
"Deposit"  column.  On  credit  side  each  check  should  be  entered  separately  and 
the  net  amount  extended  in  the  proper  bank  column  of  *  *  Checks. "  It  is  impor- 
tant that  no  check  go  out  before  entering  in  Cash  Book,  therefore,  the  safe  way 
is  to  use  the  Cash  Book  as  a  check  book  stub  and  enter  check  before  drawing 
same.  The  balance  of  this  book  should  always  represent  bank  balances  after 
reconciliation.  In  reconciling  with  bank,  check  off  cancelled  checks  in  "Checks" 
or  "Withdrawal"  column  and  make  reconciliation  in  the  Cash  Book  instead  of  in 
check  book,  as  was  the  former  practice. 

General  Ledger: 

This  book  calls  for  no  special  comment  except  that  it  should  be  a  full- 
bound  book.  In  opening  the  accounts  an  orderly  procedure  should  be  observed. 
All  assets  and  liabilities  should  be  opened  in  the  order  shown  on  form  of  Balance 
Sheet  (Form  No.  10).  Manufacturing  or  Operating  Accounts  should  come 
next,  then  Trading  Accounts,  and  finally  all  Profit  and  Loss  Accounts. 

Customers  Ledger  : 

This  may  be  the  regulation  loose-leaf  stock  form  and  calls  for  no  special 
comment. 

Creditors  Ledger: 

Many  concerns — on  account  of  the  posting  involved — do  not  care  to  main- 
tain a  Creditors'  Ledger,  preferring  the  voucher  method,  checking  off  on 
voucher  record  all  items  as  paid  and  at  the  end  of  month  listmg  unchecked 
items,  to  get  reconciliation  with  Accounts  Payable  or  Vouchers  Payable  con- 
trolling account.  However,  a  Payable  or  Creditors*  Ledger  in  loose-leaf  form 
has  much  to  commend  its  use  and  as  the  postings  are  fe"w,  no  real  reason  can  be 
set  up  for  not  keeping  same.  The  credits  should  be  posted  from  Purchase 
Journal  daily ;  debits  are  posted  daily  from  Cash  Book.  The  posting  of  credits  is 
the  only  additional  work  entailed  in  the  utilization  of  this  book.  If  no  Credit- 
ors' Ledger  is  kept,  the  total  of  "Unpaid  Invoices"  file  should  equal  "Accounts 
Payable"  Account  in  General  Ledger.  In  like  manner,  the  total  of  unchecked 
items  in  Purchase  Journal  should  equal  controlling  Account. 

19 


W_ 


Ptrchase  Journal: 

This  book  (see  Form  No.  3)  takes  the  place  of  Voucher  Register  and  should 
be  a  bound  book.  As  its  title  indicates,  it  is  a  record  of  purchases  other  tJian  for 
cash  (which  should  go  through  Cash  Book).  As  invoices  are  received  from  mill, 
or  other  sources,  as  being  0.  K.  as  to  price,  extension,  quantity,  etc.,  they  are 
entered  in  this  book;  if  they  are  subject  to  discount  they  are  next  entered  on 
discount  "tickler" — (a  small  box  or  tray  of  cards  with  divisions  for  days  1-31 
and  months  January  to  December,  having  one  or  more  cards  for  each  day). 
In  entering  invoices  on  cards  enter  only  date,  name  of  creditor,  and  amount, 
and  then  file  in  "Unpaid  Invoices"  file.  If  a  purchase  is  not  for  "Stores", 
"Coal"  or  "Gypsum"  enter  in  either  "Cost  Ledger"  column  or  "Sundry" 
column,  indicating  in  "Account"  column  the  account  to  be  charged.  If  the 
purchase  is  for  the  Mill,  and  the  invoice  indicates  that  the  Mill  Office  has 
charged  the  article  out  direct  to  a  Department,  (instead  of  going  through  the 
stores)  enter  in  "Cost  Ledger"  column  and  in  the  "Account"  column,  enter 
the  account  to  be  charged.  This  column  is  posted  in  detail  to  proper  Depart- 
ment in  "Operating"  or  "Manufacturing"  section  of  General  Ledger.  Every 
item  charged  to  Manufacturing  or  Operating  Account  (in  General  Ledger) 
must  also  be  posted  to  proper  account  in  the  Cost  Ledger,  it  follows  that  the 
Mill  Office  must  have  some  medium  for  such  postings.  At  the  end  of  each 
month,  therefore,  the  General  Office  should  make  an  abstract  of  the  "Cost 
Ledger"  column  in  the  Purchase  Journal,  Cash  Book,  or  General  Journal  on  a 
Miscellaneous  Distribution  Sheet,  giving  distribution  of  such  items  charged 
direct  to  a  department.  On  such  distribution  sheet,  of  course,  no  credit  would 
appear  (credit  having  previously  been  made  when  invoice  was  entered  and  Cost 
Ledger  debited).  The  function  of  the  abstract  merely  being  a  posting  medium 
for  debits  previously  charged  to  Cost  Ledger  by  General  Office. 

If  the  purchase  is  for  Departments  other  than  the  Mill,  same  would  go  in 
"Sundry"  column,  entering  account  to  be  charged  in  "Account"  column.  For 
instance,  a  debit  for  printing  or  stationery  would  go  in  "Sundry"  column,  and 
in  "Account"  column  would  be  entered  "Stationery  and  Printing".  A  bill 
for  telephone  or  telegraph  service  would  also  go  in  "Sundry"  column,  and 
"Telephone  and  Telegraph"  entered  in  "Account"  column.  Like  the  "Cost 
Ledger"  column  the  "Sundry"  column  is  posted  in  detail. 

General  Journal: 

This  book  (see  Form  No.  2)  is  intended  to  care  for  all  entries  that  can  not 
go  through  any  other  medium  or  book  of  original  entry,  i.  e.,  monthly  closing 
of  Manufacturing,  Operating  and  Trading  Accounts,  yearly  closing  of  Profit 
and  Loss  Accounts,  etc. 

Sales  Record  and  Debit  Memos: 

The  usual  method  of  accounting  sales  has  been  through  the  medium  of  the 
Sales  Record.  This  record  is  written  up  daily  from  carbon  copies  of  invoices 
and  then  becomes  the  posting  medium.  In  plants  where  shipments  are  heavy 
the  work  entailed  in  writing  up  this  book  is  quite  an  item,  to  say  nothing  of  the 
possibility  of  errors  being  made  in  transcribing  same  from  copies  of  invoices. 
In  nearly  all  concerns  the  more  modem  method  of  utilizing  the  carbon  copy  of 

20 


the  invoice  as  a  posting  medium  has  been  adopted.  There  is  no  reason  why 
this  method  should  not  be  employed  in  the  cement  industry.  To  employ  this 
method  Form  No.  4  has  been  devised.  Such  a  form  should  take  in  three  invoices 
and  the  invoices  should  be  printed  in  sets  of  three  and  perforated.  To  properly 
utilize  these  forms  the  billing  typewriter  should  have  a  carriage  at  least  20 
inches  wide  to  take  in  the  form.  To  make  the  record,  utilize  the  form  as  the 
carbon  copy,  place  the  invoice  in  such  a  position  as  to  bring  the  net  amount  of 
the  invoice  or  debit  memo  in  the  "Accounts  Receivable"  or  "Customers'  Ledger" 
column.  When  an  invoice  has  been  completed  and  while  the  form  is  still  in 
the  typewriter  make  proper  distribution;  i.  e.,  to  "Cement  Sales",  "Bags",  or 
"Sundries".  We  now  have  a  complete  record  of  the  sale  at  one  writing.  Debits 
to  customers  of  amounts  in  the  "Customers'  Ledger"  or  "Accounts  Receivable" 
column  are  posted  daily. 

This  is  not  intended  to  be  a  mere  record  of  the  sales  of  cement,  but  repre- 
sents all  charges  to  the  Customers'  Ledger.  Suppose  a  mistake  has  been  made 
in  a  previous  invoice  and  an  additional  charge  to  a  customer  is  to  be  made.  If 
no  debit  memos  are  used  by  a  company  (although  they  can  be  printed  up  at  a 
trifling  expense),  the  customer  is  advised  of  such  a  charge  by  letter,  a  carbon  copy 
being  made  on  form  the  same  as  on  invoice.  If  this  is  done,  enter  the  amount  in 
"Accounts  Receivable"  or  "Customers'  Ledger"  column  and  distribute  to 
"Cement  Sales"  or  proper  department.  Suppose  scrap  iron  is  sold.  Make  out 
invoice  the  same  as  for  cement,  entering  total  in  "Accounts  Receivable"  or 
"Customers'  Ledger"  column  and  on  the  credit  side  of  the  sheet  in  the  "Sun- 
dry" column  extend  same  amount  and  in  "Account"  column  credit  "Scrap 
Sales".  This  "Sundry"  column  is  posted  in  detail  to  proper  accounts.  The 
totals  of  the  sheets  should  be  carried  forward  day  by  day,  and  each  sheet  bal- 
anced, i.  e.,  the  total  credits  should  equal  the  "Accounts  Receivable"  or  "Cus- 
tomers' Ledger"  column.  At  the  end  of  the  month,  the  top  sheet  will  carry 
total  to  be  posted  to  General  Ledger  Accounts.  It  will  be  seen  that  all  journal 
entries  for  small  differences,  and  vouchering  at  the  end  of  the  month,  is  elimi- 
nated. 

But  one  objection  to  this  method  can  be  offered,  and  that  is  its  bulkiness. 
As  there  should  be  three  invoices  to  a  sheet  no  great  objection  can  be  offered, 
especially  since  there  would  be  three  times  that  number  of  carbon  copies  of 
invoices,  of  no  real  value  as  an  accounting  medium.  The  time  saved  should 
off-set  any  objection  on  the  score  of  bulkiness,  to  say  nothing  of  having  one 
source  for  all  debits  to  customers. 


Sack  Returns  and  Credit  Memos  : 

The  accounting  of  sack  returns  by  various  companies  is  the  same  as  that 
employed  in  accounting  the  sales ;  i.  e.,  a  Sack  Record  is  kept.  There  is  no  rea- 
son why  all  credits  should  not  be  handled  the  same  as  debits,  and  to  do  this  the 
Sack  Return  or  Credit  Memo  Form  (see  Form  5)  has  been  designed.  Like  the 
invoices,  the  sack  credits  should  be  printed  in  sets  of  three  and  the  same  pro- 
cedure as  in  the  case  of  invoices  employed  in  making  them  out.  Credit  Memos 
for  other  than  sack  credits  should  be  used  for  Sundry  credits,  (t.  e.,  difference 
in  invoices,  etc.)  the  record  being  made  on  carbon  sheet  as  in  the  case  of  debits, 
entering  total  of  credit  in  "Accounts  Receivable"  or  "Customers'  Ledger" 

81 


colunm  and  debit  in  "Cement  Sales"  or  Sundry  Accounts  in  the  "Sundry" 
column.  "Accounts  Receivable"  or  "Customers'  Ledger"  column  should  be 
posted  from  day  to  day.  Each  sheet  should  be  footed  and  totals  carried  for- 
ward daily,  proving  each  sheet  as  you  go  along,  and  at  the  end  of  the  month 
the  top  sheet  becomes  the  General  Ledger  posting  medium,  eliminating  all  jour- 
nalizing or  vouchering. 

Binders: 

To  properly  file  the  various  statements  and  forms  emanating  in  the  General 
or  Mill  OflSce,  binders  have  been  provided  by  the  Association  to  be  sold  to  com- 
panies at  actual  cost,  the  same  as  forms,  etc.  To  properly  file  these  records  the 
following  binders  are  necessary: 

Distribution  Sheets — ^with  five  sub-divisions  for  the  five  Distribution 

Sheets. 
Pay  Rolls. 

Monthly  Statements — with  five  divisions  for  the  five  Monthly  State- 
ments. 

Cost  Sheets — ^with  three  sub-divisions  for  Quarries  1-2  and  Mill  Cost 

Sheets. 
Sales  and  Debit  Memos. 
Sack  Returns  and  Credit  Memos. 

MILL 
Cost  Ledger: 

Preferably  this  ledger  should  be  kept  at  the  Mill  Office,  being  a  subsidiary 
ledger  controlled  by  the  "Finished  Cement"  account  in  the  (General  Ledger. 
In  other  words,  a  trial  balance  of  Quarry  Sections  1  and  2  and  Mill  Section, 
should  equal  the  total  shown  by  the  "Finished  Cement"  account  for  the  month. 
The  accounts  in  this  ledger  are,  however,  not  closed  until  the  end  of  the  fiscal 
year,  thus  making  it  possible  to  draw  off  a  trial  balance  for  the  month  (using 
only  that  month's  figures)  or  a  trial  balance  for  period  to  date  (using  cumu- 
lative totals).    It  is  preferably  in  loose-leaf  form. 

Postings  are  made  but  once  a  month  from  carbon  copy  of  Distribution 
Sheets.  Of  course,  only  items  appearing  in  "Cost  Ledger"  column  are  posted. 
By  reference  to  Chart  of  Accounts  showing  accounts  appearing  in  this  ledger, 
it  will  be  noted  that  it  carries  six  sections,  which  should  be  divided  off  by 
division  sheets,  indexed,  as  below: 

Raw  Material  No.  1, 

Raw  Material  No.  2, 

Mill, 

Auxiliary, 

Memorandum, 

Inventories. 

The  first  three  sections  represent  the  acttial  operating  accounts,  inasmuch 
as  the  "Auxiliary"  accounts  are  closed  into  the  Operating  Accounts  at  the  end 

89 


of  the  month.  The  Memorandum  Accounts  are  closed  at  end  of  year.  The 
Inventory  Accounts  are  merely  memoranda.  There  is  no  limit  to  the  number 
of  accounts  that  may  be  maintained  in  the  Cost  Ledger,  all  depending  upon  the 
details  desired.  See  "Chart  of  Accounts"  for  accounts  usual  to  a  cement  plant. 
As  it  is  necessary  to  know  the  total  cost  of  "Power",  "Coal  Preparing", 
"Machine",  "Blacksmith",  "Carpenter  Shop"  and  "Floating  Gang"  before 
distribution  can  be  made,  it  is  advisable  to  make  the  first  account  in  the  Auxil- 
iary Account  section  the  Summary  Account — such  accounts  to  be  headed : 

Power,  Light  and  Water, 
Coal  Preparing, 
Machine  Shop, 
Carpenter  Shop, 
Blacksmith  Shop, 
Floating  Gang. 
R.  R.  and  Switching. 

Charge  only  totals  to  these  accounts,  and  for  this  purpose  the  totals  shown 
in  the  "Grcneral  Ledger"  column  of  Distribution  Sheets  may  be  utilized.  In 
other  words,  these  accounts — ^when  all  postings  are  made — should  be  the  same 
as  these  accounts  appearing  in  the  General  Ledger,  which  see.  As  previously 
explained,  they  are  closed  monthly  into  the  various  Operating  Accounts.  As 
they  are  merely  used  to  bring  together  all  items  preliminary  to  distribution,  it 
is  not  necessary,  or  proper,  to  make  any  journal  entry  to  close  same  into  the 
various  Operating  Accounts.  Merely  close  by  an  entry  "By  Sundry  Accounts", 
then  enter  the  various  accounts  to  be  debited  and  post  such  debits  to  proper 
Operating  Account,  i.  e.,  "Coal  Preparing"  would  be  credited  and  "Clinker 
Department"  debited.  Such  postings  are  made  from  the  various  "Miscellaneous 
Distribution"  sheets.  Following  each  Summary  Account  are  the  detailed  ac- 
counts represented  by  such  Summary,  i.  e.,  take  Power,  Light  &  Water  account 
Summary.    The  detailed  accounts  for  Labor  following  this  would  be: 

Labor — Engineers, 
Labor — ^Foremen, 
Labor — Coal  Preparers, 
Labor — Electrician,  etc.,  etc. 

These  detailed  accounts,  like  those  of  the  "Quarry''  and  "Mill"  Sections, 
are  not  closed  until  the  end  of  the  fiscal  year.  From  such  accounts  it  is  possible 
at  all  times  to  know  the  total  amount  to  date  of  any  account,  thus  facilitating  the 
entering  of  cost  per  unit  "to  date"  on  Cost  Sheet. 


The  other  Mill  Records  are : 

Pay  Roll  Book — See  chapter 
Coal  Record 
Gypsum  Record 
Stores  Ledger 


'Labor  Accounts". 


'See  chapter  "Materials  &  Supplies". 


Distribution  Sheets. 

The  distribution  of  all  items  relating  to  the  operation  of  the  mill,  and, 
concretely,  applicable  to  the  Manufacturing  or  Operating  accounts,  are  made 

as 


through  the  medium  of  Distribution  Sheets.  These  sheets  become  original  post- 
ing mediums,  eliminating  all  vouchering  or  journalizing.  They  are  prepared 
by  the  Mill  Office  in  duplicate,  the  originals  going  to  the  General  Office  (not 
later  than  the  second  of  the  month)  from  which  postings  are  made  to  General 
Ledger  of  all  debit  items  appearing  in  the  "General  Ledger"  column  and 
credits  in  "Sundry"  column.  From  the  duplicate  kept  at  the  Mill  Office  all 
postings  of  debits  appearing  in  the  "Cost"  Ledger  column  are  made.  Let  it 
be  understood  that  the  Cost  Ledger  postings,  (except  the  totals  to  the  Auxiliary 
Account  Summary),  can  be  made  from  duplicates  at  any  time.  Do  not  hold 
up  monthly  reports  by  attempting  to  post  Cost  Ledger;  get  all  reports  into 
General  Office  first,  then  post. 

In  some  plants  but  few  records  are  prepared  at  the  mill,  even  the  Cost 
Ledger  and  Cost  Sheets  being  kept  and  prepared  at  the  General  Office.  Under 
ordinary  conditions  all  Distribution  Sheets  would  be  prepared  by  Mill  Office, 
but  wherever  the  Cost  Ledger  is  kept,  governs,  to  a  large  extent,  just  what 
records  should  be  prepared  and  kept  at  the  mill.  Certainly  the  Payroll,  Repair, 
Labor,  Materials  and  Supplies,  Power,  Coal  and  Gypsum  Distribution  Sheets 
should  be  prepared  by  the  Mill  Office,  even  though  the  Cost  Ledger  is  kept  at 
the  General  Office. 

To  the  end  that  a  thorough  understanding  as  to  the  use,  preparation,  and 
purport  of  the  various  Distribution  Sheets  may  be  had,  a  brief  description 
follows : 


Payroll  (See  Form  No.  20) : 

This  form  is  prepared  from  the  "Summary  of  Payroll"  for  the  two  payroll 
periods,  and  should  be  in  the  General  Office  not  later  than  the  second  or  third  of 
the  month.  If  the  workmen's  time  is  posted  daily,  there  will  remain  only  the 
extension  of  total  time  and  earnings  to  be  computed.  This  should  be  completed 
on  the  first  or  second  of  the  month.  If  the  payroll  book  or  sheets  are  kept  as 
suggested  in  chapter  on  "Operating  Labor",  that  is,  a  separate  sheet  or  page 
for  each  department,  but  little  trouble  will  be  experienced  in  preparing  this 
sheet. 

It  will  be  noted  from  the  form  that  only  the  usual  segregation  of  labor  by 
departments  is  given.  Some  companies  desire  a  more  detailed  distribution  than 
others.  Take  Raw  Material  No.  1,  only  seven  operations  are  given.  If  desired 
this  could  be  increased  to  ten  by  simply  opening  up  additional  accounts  in  the 
Cost  Ledger.  This  rule  applies  to  all  departments.  While  some  companies 
might  be  satisfied  with  one  account,  "Operating  Labor, — Raw  Material  No.  1" 
with  no  divisions,  others  desire  greater  details;  therefore,  the  divisions,  or 
accounts  carried  in  Cost  Ledger,  must  be  opened  to  meet  individual  needs. 

The  total  of  Payroll  Distribution  sheet  for  month  should  equal  total  charge 
to  "Payroll"  Account  in  General  Ledger,  thus  automatically  closing  that  ac- 
count. As  this  and  all  other  distribution  sheets  are  dated  as  of  end  of  month, 
the  posting  to  payroll  account  will,  in  effect,  produce  a  credit,  representing 
the  accrued  payroll  for  the  last  two  weeks.  When  check,  or  checks,  for  payroll 
for  last  two  weeks  is  drawn  the  charge  in  one  amount  wipes  out  the  credit  and 
closes  the  account. 

24 


Repair  Labor, — Machine,   Blacksmith  and   Carpenter   Shops    {See   Form 

No.  21): 

As  explained  under  chapter  relating  to  "Repair  Labor",  this  sheet  is 
made  up  from  totals  of  various  columns  appearing  on  Analysis  Sheets  of  "Re- 
pair Labor".  If  the  various  columns  on  the  Analysis  Sheet  conform  with  De- 
partments listed  on  the  Distribution  Sheet,  the  preparation  of  the  Repair  Labor 
Distribution  Sheet  should  present  no  difficulties.  After  entering  all  totals,  it 
will  be  found  that  the  total  so  distributed  will  not  equal  the  total  amount  shown 
by  the  Summary  Account  in  the  Cost  Ledger — in  Auxiliary  Accounts  section. 
Therefore,  any  balance  necessary  to  equal  the  total  of  such  summary  account 
represents  the  overhead  for  the  shop.  Whatever  amount  is  necessary  to  balance 
with  summary  figure  should  be  entered  under  head  of  "Mill  Overhead",  Ma- 
chine Shop,  Blacksmith  or  Carpenter  Shop ;  when  all  charges  have  been  entered, 
credit — "Machine,  Blacksmith  or  Carpenter  Shop"  in  General  Ledger  and  the 
summary  accounts  in  Cost  Ledger.  Let  us  assume  that  the  Summary  Account 
for  the  Machine  Shop  shows  total  debits  of  $1,000  for  the  month,  and  the  total 
distribution — as  revealed  by  the  analysis  sheet  (from  Work  Tickets)  foots  up 
but  $800,  the  $200  would  represent  the  shop  overhead,  i.  e.,  Foremen's  undis- 
tributed time.  Power,  Coal,  Supplies,  etc. 

Materials  and  Suppues, — Operating  and  Repair  {See  Forms  Nos.  22  and  23): 
As  explained  in  chapter  relating  to  "Materials  and  Supplies",  requisi- 
tions are  distributed  daily  on  Analysis  Sheet  headed  ' '  Materials  and  Supplies^ 
Operating"  and  "Materials  and  Supplies — Repairs".  It  is  from  this  Analysis 
Sheet  we  prepare  these  Distribution  Sheets.  To  prevent  any  delay  in  the  prep- 
aration of  the  various  monthly  statements  and  to  expedite  the  preparation  of 
the  other  distribution  sheets,  it  is  best  to  close  off  the  distribution  of  materials 
and  supplies  on  the  29th  of  each  month  and  prepare  these  sheets  immediately 
after  closing,  sending  originals  to  General  Office  as  soon  as  prepared.  As  previ- 
ously noted,  all  distribution  sheets  should  be  in  the  General  Office  by  the  second 
of  the  month,  therefore  any  preliminary  work  that  can  be  done  prior  to  the  end 
of  the  month  and  thereby  facilitate  the  preparation  of  various  distribution 
sheets  and  prevent  delay  should  be  carried  out  by  all  means. 

Reserves  {See  Form  No.  24) : 

These  distribution  sheets  should  also  be  prepared  prior  to  the  end  of  the 
month,  not  later  than  the  28th,  and  sent  to  the  General  Office.  If  not  prepared 
at  Mill  same  should  be  made  up  by  the  General  Office  prior  to  receipt  from  Mill 
of  other  distribution  sheets.  The  sheets  are  prepared  from  schedules  pre- 
determined at  the  beginning  of  each  fiscal  year. 

Insurance  and  Taxes. 
These  charges  are  based  on  amounts  spent  in  previous  year.  Such  amounts 
are  absorbed  in  each  month's  costs  and  credited  to  "Reserve  for  Taxes"  and 
"Reserve  for  Insurance"  except  as  in  the  case  of  "shut-down"  periods.  (See 
"Deferred  Charges"  in  another  chapter.)  Against  these  reserves  actual  pay- 
ments are  charged.  As  it  is  impossible  to  know  the  actual  amount  to  be  paid 
out  in  advance,  adjustment  will  have  to  be  made  as  soon  as  actual  figures  are 
known.    After  payment  is  made,  and  charged  to  reserve  accounts,  such  reserve 

25 


'i 


accounts  will  show  a  debit  balance — representing  a  deferred  asset — ^under  the 
title  "Insurance  Prepaid",  "Taxes  Prepaid",  etc.,  subject  to  reduction  each 
month  by  succeeding  credits,  being  finally  closed  at  end  of  year. 

Depreciation. 
The  monthly  charge  for  depreciation  is  determined  from  "Table  of  Depre- 
ciation" (See  Form  No.  28),  which  is  prepared  after  appraisal  and  segregation 
of  all  plant  properties;  once  prepared  it  becomes  the  "constant"  for  all  subse- 
quent years.  This  table  should  form  a  permanent  document  in  the  files  of  the 
General  Office, — subject  to  inspection  by  the  Federal  authorities — to  support 
annual  depreciation  charge  which  is  to  be  deducted  in  making  up  Income  Tax 
Betums.     (See  chapter  relating  to  "Depreciation"  for  further  information.) 

Depletion. 

The  figures  entered  on  this  sheet  are  secured  from  pre-determined  data  pre- 
pared to  meet  conditions  existing  in  individual  plants.  (See  "Depletion"  in 
another  chapter.) 

Contingencies. 

The  same  remarks  under  head  of  "Depletion"  apply  to  this  item. 
Miscellaneous  {See  Form  No.  25) : 

These  sheets  distribute  sundry  items  of  cost  at  mill,  and  as  coal  is  an  item 
of  cost  in  departments  subject  to  redistribution  later,  we  will  consider  this 
item  first.  The  "Coal  Eecord"  (see  Form  No.  13)  supplemented  by  daily  mill 
reports,  furnishes  the  medium  for  the  distribution  of  coal.  (See  chapter  headed 
"Coal".)  Coal  is  charged  out  at  the  average  price  at  mill  and  in  like  manner 
inventoried  at  an  average  price.  Care  should  be  observed  that  such  average 
price  agrees  with  the  average  as  shown  by  the  "Coal"  account  kept  in  General 
Ledger.  To  this  end  it  might  be  well  to  have  an  agreement  each  month  with 
the  General  Office  as  to  average  price  before  distribution  is  made. 

Gypsum. 
This  distribution  is  made  from  "Gypsum  Record"  and  is  charged  out  at 
an  average  price;  like  coal,  adjustment  of  such  average  price  should  be  made 
between  General  and  Mill  Office,  before  charge  is  made  for  month's  consumption. 

Floating  Gang. 
Distribution  of  this  item  is  ascertained  either  from  Payroll  book  or  sheet,  or 
if  distributed  daily,  on  Analysis  sheet,  from  that  medium.     (See  "Floating 
Gang"  under  chapter  relating  to  "Labor".) 

Power,  Light  <&  Water. 
The  total  power  cost  as  ascertained  from  Power  Summary  Account  in 
Auxiliary  Section  of  Cost  Ledger,  is  distributed  on  basis  ascertained  from  "Table 
of  Power  Distribution"  (see  Form  No.  19),  which  should  be  prepared  at  begin- 
ning of  year's  operations  by  Mill  Superintendent. 

Coal  Preparing  (or  Fuel  OH). 
As  the  Summary  Account  under  this  heading  is  used  for  the  purpose  of 
bringing  together  all  charges  incident  to  preparing  coal  or  oil  for  the  kilns,  the 
total  of  such  summary  represents  amount  to  be  shown  on  this  sheet  as  a  debit  to 
Clinker  Department. 

Railroad  and  Switching. 
Distribution  of  this  account  may  be  on  basis  of  actual  work  performed,  or 
on  a  predetermined  percentage  basis. 

26 


Description  of  General  Ledger  Accounts 

ASSETS  AND  LIABILITIES. 
These  accounts  call  for  no  special  comment  except  as  hereafter  noted. 

TRADING  ACCOUNTS. 

These  accounts  represent  the  ratio  of  "cost  of  sales"  to  "gross  profit"  and 
is  in  accordance  with  the  standard  form  approved  by  Accounting  Societies  and 
the  United  States  Government.  They  are  represented  by  several  accounts,  the 
first  of  which  is : 

Trading  Account  {Account  No.  31): 

This  is  a  summary  account.  It  is  charged  with  "Cost  of  Sales"  from 
"Cement  Inventory  Account"  No.  151  and  credited  with  "Sales  of  Cement" 
from  "Cement  Sales  Account"  No.  321.  The  balance  represents  "gross  profit" 
and  is  transferred  to  "Profit  and  Loss"  Account  No.  41. 

Cement  Inventory  {Account  No.  151): 

This  account  always  begins  with  the  Inventory  of  Cement  at  the  end  of 
the  previous  month.  It  is  then  debited  with  cement  produced,  showing  both 
the  number  of  barrels  produced  and  cost,  from  "Finished  Cement"  Account  No. 
66.  This  debit  added  to  inventory  figure  at  the  beginning  of  each  month  gives 
the  average  cost  per  barrel  to  be  accounted  for.  When  this  is  ascertained,  credit 
the  account  with  "Cost  Sales"  and  debit  "Trading  Account"  No.  31.  The 
resultant  balance  represents  the  inventory  at  the  end  of  period  at  the  average 
cost  price. 

Cement  Sales  {Account  No.  321) : 

Credit  all  sales  of  cement  to  this  account  from  "Sales  Record"  or  debit 
memorandum  (see  Form  No.  4)  and  debit  with  all  allowances  (other  than  sack 
returns  and  discounts)  from  "Sack  Returns"  or  credit  memorandum.  (See 
Form  No.  5.)  The  balance  represents  the  net  sales,  and  is  closed  into  "Trad- 
ing Account  No.  3". 


Sack  Sales : 
See  chapter. 


'Package  Accounting' 


PROFIT  AND  LOSS  ACCOUNTS. 


Any  item  representing  a  loss  (expense)  or  profit  (income)  should  be  rep- 
resented by  an  account  properly  headed  in  the  Profit  &  Loss  Section  of  the 
General  Ledger.  * '  Profit  and  Loss ' '  in  the  past  has  been  the  *  *  dumping  ground  * ' 
for  any  items  that  it  might  seem  impossible  to  distribute.  There  is  a  proper 
place  for  every  charge,  and  familiarity  with  the  various  profit  and  loss  accounts 
should  enable  any  bookkeeper  or  accountant  to  make  the  charge  to  some  specific 

87 


11 


account  in  this  group  of  accounts.    The  first  account  in  this  section  to  be  con- 
sidered is: 

Profit  and  Loss  (Account  No.  41) : 

This  is  a  Summary  Account  into  which  all  detailed  profit  and  loss  accounts 
are  closed  at  the  end  of  the  fiscal  year.  Each  month  it  is  credited  with  the 
gross  profit  from  "Trading  Account"  No.  31,  and  when  appearing  in  Trial 
Balance  of  General  Ledger,  it  should  represent  the  gross  profit  to  date. 

If  a  Trial  Balance  of  the  General  Ledger  was  taken  at  the  end  of  any 
month  it  would  only  be  necessary  to  deduct  the  total  expense  items  from  the 
total  amount  shown  by  the  Profit  &  Loss  Account  (plus  extraneous  income)  to 
know  NET  PROFITS  to  date. 

As  before  stated,  at  the  end  of  the  year  all  profit  and  loss  accounts  are 
closed  into  this  account,  the  resultant  balance,  representing  either  a  profit  or 
loss,  is  closed  into  "Surplus". 

Aside  from  the  General  or  Summary  Profit  &  Loss  Account  we  have: 

Sack  Cost  {Account  No.  42)  : 

See  chapter  "Package  Accounting". 

Packing  &  Loading  (Account  No.  43) : 

This  account  carries  the  total  expenses  applicable  to  Packing  &  Loading, 
the  detail  being  carried  in  the  Cost  Ledger  (Memo  Section). 

Sack  Handling  (Account  No.  44)  : 

The  same  remarks  relating  to  "Packing  &  Loading"  apply  to  this  account. 

Selling  Expenses  (Account  No.  45)  : 

All  items  relating  to  selling  may  be  charged  to  this  account  although  seg- 
regation, as  shown  by  "Chart  of  Accounts",  is  urged.  Accounts  No.  451  to 
459  are  recommended. 


General  Expenses  (Account  No.  46) : 

The  same  remarks  as  to  "Selling  Expenses"  apply  to  this  account, 
counts  No.  461  to  469  are  recommended. 


Ac- 


FiNANaAL  Expenses  (Account  No.  47)  : 

Segregation  of  this  account  by  opening  Accounts  471-479  are  recommended. 

As  all  purchases  are  charged  out  at  gross  cost,  any  deduction  for  discount 
should  be  credited  to  account  No.  475.  From  a  strict  accounting  standpoint  such 
discounts  should  be  deducted  from  purchases,  but  for  many  reasons  it  is  advis- 
able in  the  cement  industry  to  treat  such  discounts  as  being  foreign  to  opera- 
tion. From  an  economic  standpoint,  and  good  business  policy,  many  concerns 
deem  it  advisable  and  proper  to  borrow  money  at  6%  per  annum  to  discount 
bills  at,  2%,  10  days:  under  such  practice  any  discounts  received  might  properly 
be  credited  to  "Interest  on  Bank  Loans".  "Discount  on  Purchases"  is,  there- 
fore, properly  deductible  from  "Financial  Expense"  group  of  accounts  in  stat- 
ing this  account  in  Trading  and  Profit  and  Loss  Statement. 

M 


EXTRANEOUS   INCOME. 
Employees'  Dwellings: 

Under  this  heading  we  have  all  accounts  relating  to  any  income  not  directly 
related  to  Operations;  Accounts  481  to  489  are  recommended.  As  an  example 
take  "Employees'  Dwellings";  two  accounts  should  be  opened.  To  the  first  is 
credited  all  receipts  and  to  the  second  is  charged  all  expenses,  i.  e.,  taxes,  insur- 
ance, repairs,  etc.  At  the  end  of  the  year,  close  the  Expense  Account  into  the 
Rental  Account.  The  balance  of  Rental  Account  will  then  represent  the  net 
income  from  dwellings.  In  making  up  monthly  statements  the  same  procedure 
would  be  followed. 

Village  Lighting  : 

Some  plants  supply  lights  to  villages  and  their  employees  in  such  villages. 
Treatment  of  this  account  is  identical  with  "Employees'  Dwellings".  As  an 
expense  item  against  village  lighting  would  be  a  proportion  of  power  cost,  for 
current  generated. 

Commissary  : 

Some  plants  maintain  a  Commissary.  Where  this  is  the  case  a  separate 
account  headed  "Commissary"  should  be  maintained.  This  is  debited  with  all 
purchases  and  expenses  and  credited  with  sales  and  inventory  at  the  end  of  the 
year,  or  the  end  of  the  month,  and  the  resultant  balance  is  transferred  to  * '  Com- 
missary Profits  Account".  Where  the  Commissary  is  of  some  magnitude,  it 
might  be  well  to  open  up  an  individual  set  of  books.  If  it  is  deemed  advisable 
to  open  up  such  a  set  of  books,  accounts  usual  to  a  trading  concern  are  all  that 
is  necessary. 

Interest  on  Investments: 

All  interest  received  from  investments  owned  by  the  Company  should  be 
credited  to  this  account. 

OPERATING  OR  MANUFACTURING  ACCOUNTS. 

The  accounts  under  this  heading  embrace  all  accounts  up  to  Bin  Cost. 
Only  totals  are  posted,  the  detail  being  carried  in  the  Cost  Ledger.  It,  there- 
fore, follows  that  any  item  posted  to  any  of  these  accounts  in  the  General  Ledger 
should  also  be  posted  in  detail  in  the  Cost  Ledger.  "Operating  Labor"  in 
Quarry  No.  1  may  be  one  item  in  ' '  Raw  Material  Account  No.  1 ' ',  but  would  be 
posted  to  probably  twenty  different  accounts  in  the  Cost  Ledger,  the  number 
of  accounts  depending  upon  the  detail  desired. 

Raw  Material  Nos.  1  and  2  (Account  Nos.  51  and  52)  : 

To  these  accounts  are  posted  all  items  relating  to  costs  of  raw  material 
whether  quarried,  mined  or  purchased.  At  the  end  of  the  month,  the  total  con- 
sumption is  closed  into  "Raw  Grinding  Account",  the  balance,  representing 
Inventory,  being  carried  down  to  next  month's  operations.  The  unit  of  cost  is 
tons  or  square  yards  (as  in  marl). 

Raw  Grinding  (Account  No.  61): 

This  account  is  charged  with  raw  material  from  "Raw  Material"  Accounts 
No.  1  and  2  and  all  costs  incident  to  grinding  of  raw  material    At  the  end 

29 


of  the  month  the  total  consumption  is  credited  to  this  account  and  charged  to 
"Clinker  Burning"  Account,  the  balance  (if  any)  representing  Inventory  at 
average  cost  per  barrel  of  clinker. 

Clinker  Burning  {Account  No.  62) : 

The  total  cost  of  raw  material  prepared  for  burning  is  charged  to  this 
account  from  "Raw  Grinding"  Account.  To  this  is  added  all  costs  incurred 
in  clinker  burning.  At  the  end  of  the  month  the  total  clinker  ground  is  cred- 
ited to  this  account  and  charged  to  "Clinker  Grinding"  Account,  the  balance 
representing  Clinker  Inventory  carried  to  next  month.  (See  chapter  "Monthly 
Closing".) 

CuNKER  Grinding  (Account  No.  63) : 

This  account  is  opened  with  cost  of  the  clinker  transferred  from  "Clinker 
Account"  to  which  is  added  all  costs  of  grinding,  g3T)sum  and  all  other 
costs  incidental  to  finished  grinding  and  storing.  The  total  costs  to  this  point 
represent  "Total  Direct  Cost  of  Production".  This  account  is  closed  monthly 
into  "Finished  Cement  Account". 


Mill  Overhead  {Account  No.  64) : 

Charge  to  this  account  salaries  of  General  Superintendent  and  wages  of 
foremen,  not  directly  chargeable  to  a  specific  department.  Salaries  and  expenses 
of  Mill  Office,  Laboratory,  Store  Room,  and  Overhead  of  Machine,  Blacksmith 
and  Carpenter  Shops,  Shut-down  Period  Expenses  and  any  other  items  not 
specifically  provided  for.  At  the  end  of  the  month  this  account  is  closed  into 
"Finished  Cement"  Account  in  one  amount  as  a  "Mill  Overhead"  charge. 

Reserves  {Account  No.  65)  : 

To  this  account  is  charged  Accrued  Insurance,  Taxes,  Depreciation,  Deple- 
tion and  Contingencies.  It  is  closed  into  "Finished  Cement"  Account  in  one 
amount  as  "Reserves"  charge. 

Finished  Cement  Account  (Account  No.  66) : 

This  account  is  charged  with  Finished  Cement  at  Direct  Cost  of  Production 
from  "Clinker  Grinding"  Account,  and  further  charged  with  "Mill  Over- 
head" and  "Reserves",  the  total  representing  "Bin  Cost"  of  cement  for  the 
month,  which  is  transferred  to  "Cement  Inventory"  Account. 

The  following  are  certain  Auxiliary  accounts  that  are  closed  into  Operating 
Accounts  monthly ;  Summary  Accounts  are  also  carried  in  Cost  Ledger,  in  front 
of  detail  accounts,  their  purpose  being  the  same  as  those  accounts  carried  in  the 
General  Ledger,  now  described. 

Machine,  Blacksmith  and  Carpenter  Shop  (Account  Nos.  73,  74  and  75) : 

This  account  is  opened  to  record  the  expenses  of  the  Repair  Department 
and  is  closed  monthly  into  the  various  Operating  Accounts,  on  basis  of  work 
performed  as  ascertained  from  Work  Tickets.  Any  balance  (representing  over- 
head) is  charged  to  "Mill  Overhead"  as  "Machine  Shop  Overhead".  This 
account  must  be  closed  before  operating  accounts  can  be  finally  closed. 

30 


Power,  Light  and  Water  {Account  No.  71) : 

The  purpose  of  this  account  is  to  bring  together  all  costs  relating  to  the 
generation  of  power,  light  and  supplying  water.  It  is  charged  with  the  labor 
of  engineers,  electricians,  firemen,  coal  and  ash  handlers,  all  supplies,  coal,  etc., 
and  at  the  end  of  the  month  is  closed  into  the  various  departments  on  basis  of 
power  delivered  or  consumed  by  each  department  as  ascertained  from  "Table 
of  Power  Distribution".    (See  Form  No.  19.) 

Coal  Preparing  (Account  No.  72)  (or  Fuel  OM)  : 

Like  Power,  Light  and  Water,  it  is  necessary  to  know  the  total  costs  of 
ground  coal  or  oil  before  same  can  be  charged  to  "Clinker  Burning"  as  Fuel 
charge.  Therefore,  charge  to  this  account  the  unground  coal  or  crude  oil  and  all 
costs  incidental  to  its  preparation  for  the  kilns,  i.  e.,  unloading,  drying,  grinding, 
etc.  Coal  used  in  drying  the  unground  coal  would  also  be  charged  to  this  ac- 
count. At  the  end  of  the  month,  it  is  closed  into  "Clinker"  Account  as  a  Fuel 
charge. 

Floating  Gang  (Account  No.  76) : 

This  account  should  summarize  all  labor  and  expenses  of  the  Floating  Gang. 
It  is  closed  monthly  into  the  various  Departmental  accounts  on  the  basis  of 
work  performed,  as  revealed  by  an  analysis  of  Work  Tickets.  Any  undistrib- 
uted balance  of  this  account  is  charged  to  "Mill  Overhead"  as  "Floating  Gang" 
expense. 

Railroad  and  Switching  (Account  No.  77)  : 

This  account  carries  all  charges  incident  to  operation  of  industrial  railroad. 
It  is  distributed  monthly  to  various  departments  on  basis  of  work  performed  or 
predetermined  percentages. 


p^ 


#1 


31 


it 


VI 


;« 


■"fl*"'' 


Definition  of  Accounts 

Before  considering  Labor  and  Supplies  as  Accounts  it  might  be  well  to  de- 
fine just  what  constitutes  "Operating"  and  "Repair"  Labor  and  "Operating" 
and  "Repair"  Supplies.  That  all  plants  may  observe  the  same  rules  the  fol- 
lowing definitions  are  given: 

LABOK 
Supervision  : 

Salary  of  Superintendent,  General  Foreman — Day  and  Night. 

Operating  : 

All  supervising  and  direct  productive  labor  employed  in  the  regu- 
lar operation  of  a  department. 

Repair  and  Maintenance  : 

All  labor  employed  in  keeping  in  repair  the  machinery,  buildings, 
and  other  equipment.  Such  mechanics  and  other  repair  men,  including 
foremen,  will  be  charged  to  "Machine,  Blacksmith  or  Carpenter  Shop", 
and  at  the  end  of  month  the  total  of  such  charges  will  be  distributed 
over  the  various  departments  where  work  was  performed  (see  "Re- 
pair Labor  Distribution  Sheet")  on  basis  of  Work  Tickets.  (Form 
No.  17.) 

SUPPLIES. 
Operating  : 

All  materials  used  or  drawn  by  any  department  where  no  repair 
labor  is  employed  in  its  utilization,  i.  e.,  oil,  waste,  grease,  brooms, 
shovels,  belt-finish,  wheelbarrows,  and  tools  used  regularly  in  a  depart- 
ment. 

Repairs  and  Maintenance  : 

All  materials  or  supplies  drawn  for  the  purpose  of  making  any 
repairs  (such  supplies  being  usually  drawn  by  Repair  Department)  ; 
a  bolt  or  nut,  if  requiring  labor  to  place,  would  be  a  "repair"  part. 

FUEL. 

This  item,  in  the  cement  industry,  contemplates  only  fuel  used  for 
drying  raw  material,  drying  coal,  or  burning  clinker.  Unground  coal 
is  charged  to  "Coal  Preparing"  Account,  including  all  costs  of  prepar- 
ing, ».  e.,  labor  grinding  and  drying,  unloading,  supplies,  proportion 
of  power,  etc.  After  its  preparation  it  is  charged  to  "Clinker  Depart- 
ment "  as  a  "  Fuel ' '  cost.  Coal  used  in  Power  Plant  is  a  power  cost  and 
should  be  charged  to  "Power,  Light  and  Water"  Account  direct. 

33 


I'll 


,1 


i 


'i' 


Definition  of  Operating  Supplies  -  Repair  and  Maintenance 
Supplies  -  Replacements  -  New  Construction. 


e.t 


•OPERATING  SUPPLIKSt 

All  tools  and  supplies  consumed  in  Operating,  i 

Oil,  waste  and  grease 

Shovels,  picks,  sledges 

Brooms  and  buckets 

Balls,  pebbles  and  slugs 

Boiler  compound 

Belt  lacing  and  belt  dressing 

Electric  lamp  globes 

Fire  brick  and  clay 

Packing  material,  gaskets,  etc. 

•REPAIR  AND  MAINTENANCE  SUPPLIES: 

All  repair  supplies  necessary  to  maintain  Machinery. 

i   T     +  or,S  wwtures  to  rated  efficiency  except 
Buildings.  Equipment  and  Fixtures  xo  ra^«^  ^ 

those  enumerated  under  "Operating  Supplies. 


•  • 


REPLACEMENTS! 


purpose 
preciati 
to  Plant 
Machiner 
credited 
and  char 
to  the  d 
dlf feren 
item  in 


All 
of  re 
on  ha 

acco 
y  and 

with 
ged  t 
eprec 
ce  to 
the  P 


purchase 
placing  e 
3  been  se 
unt ,  i.e. 

Equipmen 

the  valu 
0  Reserve 
iation  re 

be  charg 
rofit  and 


3  of  new  Machine 
listing  machines 
t  up,  should  be 
,  Mill  Machinery 
t.  etc.  Plant  ac 
e  of  the  old  mac 

for  Depreciatio 
served  up  to  dat 
ed  to  "Obsolesce 

Loss  Account. 


ry  and  Equipment  for  the 

or  units  for  which  de- 
capitalized  by  a  charge 

and  Equipment.  Quarry 
count  should  then  be 
hines  or  units  taken  out 
n.  up  to  an  amount  equal 
e  of  replacement,  the 
nee"  as  an  extraneous 


•♦•NEW  CONSTRDCTIOHt 


All  new  Machinery.  EQUIPMENT  and  Fixtures.  Buildings 
and  Land  (incI^JITng  labor  incident  to  erection  and  placing) 
should  be  charged  to  this  account. 

•An  operating  expense 
•♦A  charge  to  Reserve  for  Depreciation 
•••A  charge  to  Capital 

In  the  above  would  of  course  be  included  the  labor 
incident  to  the  utilization  of  the  above  supplies. 


Adopted  -  September  24,  1919, 


WASTE  HEAT  BOILER  ACCOUNTING 

Sinco  the  Asaociat^.on  "book  on  Cost  Accounting  was  con- 
pilod,  many  nills  havo  installed  oquipncnt  to  utilizo  wasto  hoat 
from  tho  kilns  for  gonorating  stoan  for  povror  plant  operation. 
A  demand,  therefore,  has  arisen  for  a  nothod  of  accounting  which 
will  provide  for  this  now  dovolopnent .   After  consultation  with 
roprosontativos  of  nills  using  vcsto   hoat  boilers  and  oarcful 
consideration  of  the  subject,  the  Connittec  on  Standard  Cost 
Accounting  sonotino  ago  roconnoidod  that  the  following  broad 
principle  bo  observed:  (See  Minutes  .of  Annual  Hooting,  1921, 
page  241)  - 

^0  total  cost  of  oporation  and  repair  of 
wasto  hoat  boiler  plant  to  be  charged  to  an  auxiliary 
account  torned  "Waste  Hoat  Boilers".  Each  month  this 
Bcootint  is  closed  into  "Power  Account"  and  power  cost 
is  then  distributed  to  the  various  departments  on  tho 
basis  of  quantity  used.  The  saving  effected  by  use 
of  waste  heat  boilers  thus  being  reflected  in  all  de- 
partments using  power. 

To  provide  for  this  method  of  accounting,  the  following 
accounts  are  suggested,  the  numerals  to  correspond  to  existing 
Chart  of  Accounts; 

70  -   WASTE  HEAT  BOILERS 

701  -   OPERATING  LABOR 

7011  V/ater  Tenders 

7012  Boiler  Cleaners 

7013  Flue  Cleaners 

702  -   REPAIR  LABOR 

7021  Boilers 

7022  Turbo  Gonerators 

7023  CondensorE 

7024  Economiaerp 

7025  Feed  Water  Hoators  and  Pumps 

7026  Superheaters 

7027  Fans 

7026  Transmission 
7029  Miscellaneous 

703  -   OPERATING  SUPPLIES 

7031  Oil  and  Grease 

7032  Waste 

7033  Brooms 

7034  Shovels 

7035  iliscellanecus 


V 


«  2  - 


and  Funps 


704  -   REPAIR  SUPPLIES 

7041  BCllero 

7042  Turl)o  Generators 

7043  Condensers 

7044  Bcononizers 

7045  Feed  Water  Heaters 

7046  SutJerheaters 

7047  Fans 

7048  Transnission 

7049  Miscellaneous 

It    the  end  of  the  nonth,  accounts  701,  702,  703  and  704 
are  closed  into  account  #70  -  Waste  Heat  Boilers.   Waste  Heat 
Boiler  account  is  then  closed  into  Power,  Light  and  Water  account. 

To  provide  for  Depreciation  of  waste  heat  boiler  in- 
stallation, it  is  suggested  that  the  following  estimated  life  of 
the  various  properties  "be  used: 


Waste  Heat  Boilers  and  Superheaters. .. .16 

Turbo  Generators  and  equipnent 16 

Condensers. .......•...••#••••••••••••••1^ 

Bcononizers...... • ..•••••••  .16 

Feed  Water  Heaters  and  Putips 16 

Fan  Turbines. •• ^0 

Reduction  Gears 10 

Instruments • • ^^ 


years 
fi 

ft 

ti 

n 
It 

M 
H 


October,  1927 


VII 

Labor  Accounts 

Operating  Labor  : 

The  subject  of  wage  systems  has  been  so  thoroughly  covered  in  so  many 
books,  and  the  problems  attendant  upon  the  employment  and  holding  of  work- 
men  differ  so  widely  in  different  localities,  that  no  attempt  will  be  made  to  give 
them  consideration  here.  An  effort  will  be  made  simply  to  outline  a  system  of 
^fP'^'Stra^k  of  the  labor  that  is  employed,  and  of  making  sure  that  the  cost 
of  It  will  be  distributed  to  the  proper  accounts. 

As  a  preliminary  to  this,  however,  two  or  three  points  might  be  mentioned 
If  only  by  way  of  suggestion.    The  first  of  these  is  the  desirability  of  standardiz' 
ing  the  work  throughout  the  plant,  and  of  giving  accurate  designations  and 
complete  definitions  to  every  occupation  in  which  men  are  engaged.    This  having 
been  done,  it  naturally  follows  that  proper  wage  rates  can  be  fixed  for  each 
occupation,  and  the  result  will  be  simplicity  and  accuracy  in  the  handling  of 
wage  payments.    In  classifying  these  occupations,  the  account  to  which  each  is 
chargeable  should  be  shown,  so  as  to  facilitate  and  standardize  the  distribution 
of  labor  charges.    Wherever  practicable,  it  is  desirable  that  all  operating  labor 
should  be  employed  by  the   Operating  Department.    In   the    same,  way   ma- 
terials are  bought  by  the  Purchasing  Agent,  leaving  to  the  Accounting  Depart- 
ment the  one  task  of  seeing  that  the  company  gets  what  it  pays  for,  and  that 
these  payments  are  properly  charged  in  the  accounts.     Changes  in  wage  rates 
should  be  made  by  the  Accounting  Department  only  on  authority  of  written 
instructions  from  the  Operating  Department,  approved  by  the  plant  superin- 
tendent  or  higher  authorities.    These  written  instructions  sh6uld  be  retained  by 
the  Accounting  Department  as  its  authority  for  making  changes  in  the  payroll, 
and  It  should  be  definitely  understood  by  everybody  concerned  that  unauthorized 
changes  are  absolutely  prohibited. 

Payroll : 

The  most  important  record  in  Labor  Accounting  is  the  payroU,  as  all  other 
forms  and  records  in  this  branch  of  the  accounts  are  subordinate  to  it.  Form 
No.  12  illustrates  a  form  of  payroll  sheet  that  has  been  found  to  be  generaUy 
acceptable  with  concerns  paying  day  rates,  and  figuring  costs  on  a  unit  of  a 
month's  production.  This  sheet  covers  the  payroll  for  half  a  month.  It  shows 
aU  necessary  information  regarding  occupation  and  hours  worked,  provides 
spaces  for  the  total  hours,  rate,  total  earnings,  any  deductions  that  may  need  to 
be  made  from  the  total  earnings,  such  as  deductions  for  rent,  supplies  furnished 
etc.,  and  the  net  earnings  of  each  man.  The  totals  of  the  Net  Earnings  column 
on  each  set  of  payroll  sheets  wiU  be  the  amount  of  cash  that  will  have  to  be  pro- 
vided  for  the  semi-monthly  payroll.  It  wUl  be  seen  that  the  form  here  suggested 
provides  for  several  changes  of  occupation  per  man  per  month,  with  correspond- 
mg  changes  in  rates,  if  necessary.    These  extra  faint  lines  are  also  of  advantage 

83 


I' I 


1 


in  the  case  of  an  employee  whose  time  it  may  be  desirable  to  pro  rate  to  two  or 
more  aceomits. 

At  the  end  of  the  month  the  payroll  should  be  summarized  for  the  two  pay 

periods,  using  separate  sheet  headed  " Payroll  for  month  ending ,'* 

listing  the  various  departments  under  the  "Name"  column  and  extending  the 
total  payroll  to  each  department  under  the  "Earnings"  column.  It  is  from 
this  summary  that  the  "Payroll  Distribution  Sheet"  is  prepared. 

Floating  Gang: 

If  any  group  of  men  are  engaged  in  various  activities  as  their  services  may 
be  required,  they  should  be  given  a  separate  sheet  headed  "Floating  Gang" 
department.  At  the  end  of  each  day  the  foreman  of  such  a  gang  should  turn 
in  individual  time  cards  (see  Form  No.  17)  specifying  time  employed  in 
various  departments.  These  work  tickets  should  be  distributed  on  an  anaylsis 
sheet  headed  "Floating  Gang"  daily  and  at  the  end  of  the  month  the  total 
footings  of  such  sheet  should  equal  the  total  payroll  for  "Floating  Gang"  de- 
partment as  shown  by  "Payroll  Summary"  and  "Payroll  Distribution  Sheet." 
(See  Form  No.  21.)  Distribution  of  such  time  should  then  be  made  through 
the  medium  of  "Miscellaneous  Distribution  Sheet"  (see  Form  No.  25),  charging 
the  proper  departments  and  crediting  "Floating  Gang"  Account  No.  76. 

Repair  Labor  : 

All  repair  work  should  be  done  on  a  "Work  Order"  (see  Form  No.  16)  where 
possible.  When  something  happens  in  a  department  requiring  the  services  of 
a  mechanic,  the  foreman  should  issue  a  "Work  Order"  covering  the  job  and 
it  should  be  understood  throughout  the  miU  that  no  such  labor  will  be  per- 
formed unless  ordered  on  this  form.  Of  course,  no  job  should  be  held  up  on 
this  account,  but  the  foreman  of  the  Machine  Shop,  Blacksmith  Shop  or  Car- 
penter Shop  should  secure  order  after  the  work  is  completed,  at  least.  All 
mechanical  labor  employed  for  repairs  and  maintenance  throughout  the  plant 
should  be  carried  on  payroll  on  sheets  headed  "Machine  Shop,"  "Carpenter 
Shop"  or  "Blacksmith  Shop."  As  with  the  "Floating  Gang,"  the  foreman 
of  the  department  or  Master  Mechanic  should  turn  in  "Time  Card"  (see  Form 
No.  17)  for  each  man,  indicating  the  number  of  hours  employed  in  each  de- 
partment, the  work  order  number  and  the  character  of  work  engaged  on.  When 
these  work  tickets  are  received  at  mill  office  the  rate  should  be  entered  on  card 
and  the  proper  extension  made,  the  total  representing  the  hours  and  amount 
due  for  day's  work. 

The  time  cards  can  now  be  distributed  on  an  analysis  sheet  headed  '  *  Repair 
Labor"  with  columns  representing  the  departments  shown  on  "Repair  Labor 
Distribution"  sheet.  (See  Form  No.  21.)  The  total  time  accounted  for  by 
the  working  hours  for  the  month  should  represent  the  distributable  amount. 
Any  balance  between  such  distributed  time  and  the  total  payroll  of  machine, 
carpenter  and  blacksmith  shops  represents  "Lost  Time"  or  the  foreman's 
time;  in  other  words,  "Machine  Shop  Overhead."  This  amount  (necessary 
to  balance  Machine  Shop  payroll)  is  then  entered  on  "Repair  Labor  Distribu- 
tion" sheet  as  "Machine  Shop  Overhead."  This  method  is  not  the  acme  of 
refinement  in  cost  accounting,  but  it  has,  at  least,  the  merit  of  simplicity.    The 

84 


cross  reference  to  material  requisition  applying  on  the  same  job  will  be  of 
assistance  in  preparing  detailed  job  costs  when  they  are  called  for.  Where 
such  detailed  costs  are  wanted  on  all  jobs  a  simple  system  that  can  be  readily 
utilized  consists  of  an  envelope  for  every  order  issued  on  the  Machine,  Black- 
smith or  Carpenter  Shop.  After  the  requisitions  carrying  the  repair  material 
are  posted  on  the  analysis  sheet  they  can  be  placed  in  an  envelope  (see  Form 
No.  18)  bearing  the  same  work  order  number.  As  the  Work  Tickets  are  posted 
to  the  analysis  sheet  they  are  again  posted  on  the  envelope.  When  the  job  is 
completed  and  the  work  order  turned  in,  the  total  of  the  requisitions  are  also 
entered  on  the  face  of  the  envelope ;  the  sum  of  these  two  items  then  represents 
the  total  cost  of  the  job — the  detail  being  kept  in  the  envelope,  which  may  be 
filed  away. 

Repair  Parts  for  Stock: 

It  is  often  found  advisable  to  make  certain  repair  parts  for  stock.  When 
this  is  necessary  a  "Work  Order"  should  be  issued  on  the  foreman  of  the  Ma- 
chine, Carpenter  or  Blacksmith  shop  the  same  as  in  the  case  of  Repairs,  specify- 
ing the  parts  to  be  made  up.  As  raw  material,  castings,  etc.,  are  drawn  on 
requisitions  signed  by  the  foreman  of  Machine,  Blacksmith  or  Carpenter  Shop, 
such  charge  should  be  made  to  "Work  in  Process"  (Account  No.  1831)  on  requi- 
sition. When  the  job  is  completed  this  work  order  should  be  turned  in  to  mill 
office.  The  mill  clerk  at  the  end  of  the  month  will  then  distribute  such  jobs 
through  the  medium  of  the  "Miscellaneous  Distribution"  sheet  charging 
' '  Stores ' '  and  crediting  *  *  Work  in  Process. ' '  (Account  No.  1831. )  Work  orders 
for  '* Repair  Jobs"  may  be  retained  by  foreman  of  Machine,  Blacksmith  or  Car- 
penter Shop  until  job  is  completed,  when  same  should  be  returned  to  Mill  Office. 


4i 


88 


^\ 


i 


VIII 
Material  Accounts 

The  various  classes  of  material  kept  at  the  Mill  over  which  the  Accounting 
Department  must  exercise  control  and  supervision  are: 

Operating  Supplies  and  Repair  Parts, 

Coal, 

Gypsum, 

Packages, 

Raw  Material, 

Clinker  and  Cement. 

Each  type  of  material  demands  individual  handling  in  the  accounts,  but  all 
require  the  same,  or  possibly  more  careful  watching  than  is  demanded  by  cash. 
It  is  true  that  cash,  when  misappropriated,  is  more  negotiable  and  may  be 
disposed  of  more  readily ;  but  other,  and  more  important,  considerations  depend 
on  the  faithful  maintenance  of  careful  and  accurate  inventories  of  materials 
and  supplies.  If  the  inventories  are  not  carefully  kept  and  accurately  rendered, 
Cost  Sheets,  Profit  and  Loss  Statements,  and  Balance  Sheets  will  be  incorrectly 
stated ;  and  false  figures  are  worse  than  useless — they  are  dangerous. 

The  accountant  must  do  more  than  merely  make  correct  entries  of  the  fig- 
ures that  are  furnished  him.  The  cash  entries  that  he  makes  are  meaningless 
unless  the  material  is  accounted  for  as  well  as  the  money.  As  an  illustration 
may  be  mentioned  a  case  where  the  inventory  accounts  of  a  certain  company 
showed  $800  worth  of  gj^psum  on  hand.  The  material  records,  kept  by  the  Mill 
Office,  showed  that  the  gypsum  stock  at  that  time  amounted  to  only  ten  tons — 
in  other  words,  that  company  was  carrying  ten  tons  of  gypsum  on  its  books  at 
a  price  of  $80  per  ton. 

Methods  and  systems  of  purchasing  materials  and  supplies  will  not  be  con- 
sidered in  very  much  detail  in  this  place.  Conditions  vary  so  widely  that  there 
would  be  scant  use  in  attempting  to  outline  a  standard  system  or  organization 
for  handling  the  purchasing.  There  are,  however,  some  essentials  that  must  be 
given  constant  attention,  regardless  of  the  personnel  of  the  Purchasing  Depart- 
ment or  the  system  used  in  making  and  checking  purchases.  These  might  be 
outlined  as  follows: 

1.  No  purchase  amounting  to  more  than  a  purely  nominal  sum  shall  be 
made  without  the  approval  of  some  official  of  standing  in  the  company,  in 
addition  to  that  of  the  official  who  regularly  does  the  buying.  It  should  be 
understood,  however,  that  in  case  of  breakdown,  where  no  spare  part  is  at  hand, 
the  superintendent,  chief  accounting  officer,  or  even  the  senior  foreman,  may 
make  such  purchases  as  will  enable  the  plant  to  resume  operation,  such  pur- 
chases being  confirmed  by  the  regular  buying  official  or  officials  at  the  earliest 
possible  moment.  In  cases  of  this  kind,  however,  stringent  inquiry  should  be 
made  as  to  why  the  needed  spare  part  was  not  in  stock. 

36 


2.  Receipt  of  material  covered  by  each  invoice  must  be  proved  by  actual 
count,  weight,  or  other  measurement.  If  the  full  quantity  and  quality  called 
for  by  the  purchase  order  or  invoice  is  not  received  in  good  condition,  this  fact 
must  be  noted  on  the  face  of  the  invoice ;  and  where  the  loss  or  damage  is  ap- 
parently chargeable  to  the  railroad,  immediate  steps  must  be  taken  to  secure 
proper  notations  on  freight  bills  and  such  other  data  as  may  be  necessary  to 
back  up  a  claim  against  the  shipper  or  the  railroad. 

3.  It  is  strictly  the  duty  of  the  Accounting  Department  to  see  that  in- 
voices are  paid  within  the  discount  period  when  possible,  and  that  all  precau- 
tions outlined  in  the  two  preceding  paragraphs  are  observed  strictly  and  without 
fail.  The  Accounting  Department  shall  certify  all  invoices  to  the  Treasury 
Department  for  payment  and,  in  so  doing,  throw  all  possible  safeguards  around 
the  payment  of  invoices  to  insure  that  the  company  gets  full  value  for  all  the 
moneys  that  it  pays  out,  and  to  make  fraud  or  the  misappropriation  of  money 
or  materials  so  difficult  that  no  employe  shall  be  tempted  to  go  wrong. 

4.  The  Accounting  Department,  having  furnished  a  basis  for  sundry  credits 
to  Accounts  Payable,  must  now  debit  the  proper  accounts  with  the  exact  quan- 
tity and  value  (F.  O.  B.  the  point  where  they  are  stored  or  consumed)  of  the 
materials  for  which  payment  has  been  authorized. 

Operating  Supplies  and  Repair  Parts  : 

For  the  purpose  of  keeping  an  accurate  record  of  all  supplies,  it  is  advisa- 
ble that  a  Stores  Ledger  be  maintained.  The  Card  Ledger  has  been  found  to  be 
best  adapted  for  such  a  record.  A  sample  of  the  card  generally  adopted  and 
used  in  all  industrial  plants,  and,  with^a  few  exceptions,  suitable  for  any  cement 
plant,  is  shown.  (Form  No.  14.)  A  separate  card  for  each  item  or  part  should 
be  maintained.  The  columns  on  the  left-hand  side  (representing  debits)  are 
used  for  setting  down  all  details  relating  to  the  purchase  of  any  article.  It 
should  be  started  with  the  physical  inventory  and  debited  with  all  subsequent 
purchases.  To  properly  carry  out  the  idea  of  correct  stock  records  it  is  best 
to  begin  with  the  purchase  order  and  follow  the  successive  steps.  As  soon  as  the 
stock  card  balance  shows  the  stock  is  down  to  the  ''minimum  stock  carried" 
figure  a  purchase  order  should  be  forwarded  to  the  Purchasing  Department  and 
the  date  and  number  of  the  order  entered  on  the  stock  card  form  from  the 
carbon  copy  of  the  purchase  order.  When  the  Purchasing  Department  makes 
out  order  same  should  be  made  in  duplicate,  at  least,  to  check  invoice  as  to  price 
and  terms. 

When  invoices  are  received  they  should  be  stamped  with  a  rubber  stamp 
as  shown  in  (Form  No.  14^)  and  forwarded  to  the  Storekeeper  to  be  held  pend- 
ing the  receipt  of  goods.  As  goods  are  received  proper  notation  should  be  made 
on  invoice  in  space  provided  by  rubber  stamp.  The  amount  of  freight  or  express 
should  be  added  to  the  face  of  invoice  in  order  to  get  total  cost  at  mill.  Such 
total  cost  should  then  be  divided  by  the  total  unit— i.  e.,  lbs.,  dozen,  cwt.,  ft.,  or 
cost  each.  The  invoices  are  now  ready  to  be  entered  on  the  stock  card.  On  the 
left-hand  side  opposite  the  date  ordered  enter  the  date  received  and  from  whom 
purchased,  quantity  and  price  per  unit.  When  this  is  done,  the  invoice,  together 
with  freight  or  express  bill,  should  now  be  sent  to  the  Accounting  Department 

37 


I, 


i^ 


for  final  recording.  It  will  thus  be  seen  that  the  Storekeeper  by  acknowledging 
receipt  of  the  goods  is  now  charged  with  same  by  the  Accounting  Department 
by  a  debit  through  the  Purchase  Journal  to  "Stores  Ledger"  account.  This  being 
the  case  it  is  imperative,  therefore,  that  the  Storekeeper  issue  no  supplies  or  parts 
without  requisition  signed  by  the  proper  authority.  A  form  of  requisition  is 
given  in  (Form  No.  15). 

If  the  Stores  Ledger  is  kept  by  the  Storekeeper  he  will  immediately,  or  at 
the  end  of  the  day,  enter  such  requisitions  on  the  Credit  side  of  the  card,  at  the 
same  time  entering  on  requisition  the  unit  price  and  amount  in  dollars  and 
cents.  As  these  credits  are  entered,  it  is  advisable  to  watch  the  "balance"  on 
hand  and  as  soon  as  the  quantity  reaches  the  "Minimum  stock"  figure  verify 
such  balance  by  an  actual  inspection  of  tJie  stock  in  tJie  bin  or  where  oarrled. 
Such  physical  inspection  of  the  quantity  on  hand  at  the  "low  ebb"  permits  of 
verification  of  inventory  from  day  to  day  and  makes  it  possible  to  adjust  any 
differences  as  soon  as  known,  rather  than  wait  until  an  actual  inventory  is  taken 
which  might  reveal  considerable  shortage  or  difference.  For  instance,  if  a  stock 
card  called  for  a  balance  of  "three"  and  the  physical  inspection  revealed  but 
two  on  hand,  a  memorandum  requisition  should  be  put  through  for  the  unit 
short,  charging  Mill  Overhead  "Stores  Shortage."  As  stores  are  but  money  in 
a  different  form,  it  is  needless  to  add  that  but  few  memorandum  requisitions 
will  be  permitted  without  good  and  sufficient  cause.  Such  a  shortage  in  cash 
would  have  to  be  made  good  by  the  cashier  out  of  his  own  pocket. 

When  it  is  stated  that  no  supplies  or  parts  should  be  issued  without  requi- 
sition, it  is  not  meant  that  any  urgent  repair  job  is  to  be  held  up  until  requisi- 
tion can  be  procured  from  the  foreman.  The  Storekeeper  must  use  his  own 
judgment  and  in  such  a  case  it  would  bfe  the  Storekeeper's  duty  to  make  out 
requisition  for  such  parts  given  out  and  hold  same  on  file  until  he  has  the 
opportunity  of  having  same  approved  by  the  proper  authority.  If  no  Store- 
keeper is  employed  at  night,  the  night  Superintendent  or  Foreman  should  have 
a  key  to  the  storeroom,  to  permit  the  night  shift  securing  any  needed  supplies 
or  repair  parts.  Too  great  stress,  however,  cannot  be  laid  upon  the  necessity  of 
having  proper  requisitions  left  in  the  storeroom  for  supplies  taken  out. 

Requisitions  should  be  turned  in  to  mill  office  each  morning  for  previous 
24  hours  deliveries. 

As  requisitions  are  received  at  Mill  Office,  they  should  first  be  divided  as 
to  "Operating  Supplies"  and  "Repair  Supplies,"  then  further  separate  these 
two  piles  by  Departments  to  be  charged;  when  such  segregation  is  completed, 
the  total  of  each  Department  may  be  written  across  the  face  of  the  top  requi- 
sition. Requisitions  should  now  be  distributed  to  the  various  Departments  by 
entering  same  on  a  sheet  of  anaylsis  paper  having  columns  corresponding  to 
"Materials  and  Supplies"  Distribution  sheet  (see  Form  Nos.  22  and  23),  using 
a  separate  sheet  of  analysis  paper  for  "Operating  Supplies"  and  "Repair 
Supplies." 

Every  month  a  trial  balance  of  cards  should  be  taken,  listing  the  items, 
quantity  on  hand  and  prices.  Where  purchases  of  any  article  have  been  made  at 
varying  prices,  always  exhaust,  or  absorb,  the  earliest  purchase  first;  for  in- 
stance, a  purchase  of  100  units  of  a  certain  article  is  made  at  80c  per  unit,  a 

88 


subsequent  purchase  of  100  units  is  made  at  $1.00  per  unit.     The  card  reveals 
a  balance  of  120  units.    In  taking  off  trial  balance  the  listing  should  be: 

20  at  $  .80 $  16.00 

100  at    1.00 100.00 


$116.00 


By  taking  inventory  on  this  basis  the  total  of  Stores  Ledger  trial  balance  should 
equal  the  balance  shown  by  General  Ledger  Controlling  account. 

,  Should  any  material  be  returned  to  stores  it  should  be  entered  on  left- 
hand  side  of  card,  just  the  same  as  a  purchase,  except  original  requisition  num- 
ber will  take  the  place  of  order  number  and  in  the  column  "from  whom  pur- 
chased" enter  the  Department  returning  same.  Always  make  out  a  requisi- 
with  regular  requisitions.  This  return  requisition  should  be  printed  in  red  or 
made  out  in  red  ink,  if  no  special  requisition  is  provided. 

It  will  be  noted  that  the  ledger  card  contains  all  information  relating  to 
any  article  carried  in  stock  and  furnishes  valuable  information  as  to  firms  han- 
dling a  particular  article,  their  prices  and  terms  compared  with  other  firms,  etc. 

Coal: 

A  record  of  Coal  is  best  kept  in  a  Car  Book  or  Coal  Record.  (See  Form 
No.  13.)  The  left-hand  side  of  this  book  represents  the  debits  or  total  coal  to 
be  accounted  for,  preferably  based  on  the  "mill  scale  weight,"  while  the  credit 
or  right-hand  side  represents  the  disposition,  or  if  in  inventory,  just  where 
located.  When  unloaded  directly  into  a  hopper  for  immediate  use,  it  then 
becomes  a  charge  to  the  department.  If  unloaded  for  storage,  or  remains  in 
cars,  it  becomes  an  Inventory  item.  The  cars  shown  in  the  "Inventory"  col- 
umn are  brought  forward  each  month  in  red  and  final  disposition  treated  as  in 
previous  months.  For  instance:  coal  delivered  to  Power  Department  hopper 
would  go  into  "Power"  column;  if  delivered  to  Power  Storage  it  would  go 
into  the  corresponding  Inventory  column.  If  taken  out  of  storage  during  the 
month,  credit  must  be  given  in  Inventory  column  in  red  and  new  entry  in  black 
made  the  same  as  when  originally  received.  The  total  of  the  various  columns 
on  the  credit  side  headed  "Disposition"  represents  the  coal  used  by  the  various 
departments  during  the  month  and  is  distributed  through  the  "Miscellaneous 
Distribution  Sheet." 

The  handling  of  the  invoices  for  coal  and  freight  is  the  same  as  in  the  case 
of  Materials  and  Supplies. 

Gypsum: 

The  account  with  Gypsum  could,  if  desired,  be  carried  on  a  regular  stock 
card,  the  charges  being  made  when  received  as  with  other  materials  and  at  the 
end  of  month  credited  with  the  total  consumption.  If  preferred,  however,  a 
book  may  be  used  and  this  book  then  becomes  a  basis  for  making  distribution 
through  "Miscellaneous  Distribution  Sheet"  at  end  of  month. 

The  handling  of  Gypsum  bills  and  freight  bills  for  same  is  the  same  as  for 
CoaL 


89 


-1 


i 


Packages: 

This  is  a  subject  for  further  discussion  in  detail  covered  by  another  chapter, 
which  see. 

Raw  Materials: 

We  are  now  coming  to  materials  that  are  generally  produced  and  not  pur- 
chased; therefore,  the  principles  of  cost  accounting  begin  to  apply  in  order 
to  determine — first,  the  manufacturing  cost  of  this  part  of  the  product;  sec- 
ond, the  asset  value  of  piles  of  raw  materials  that  have  been  quarried,  but 
which  have  not  yet  been  put  in  manufacture.  Such  asset  values  are  controlled  * 
by  "Raw  Materials  Account  Nos.  1  and  2,"  in  the  General  Ledger.  These  show 
the  number  of  tons  of  rock  produced  during  the  month  and  the  cost  of  quarry- 
ing or  producing  same.  This  tonnage  of  rock  will  be  charged  to  the  current 
month's  cost  of  raw  grinding,  providing  rock  produced  was  consumed. 

If  more  rock  was  purchased  than  was  consumed,  the  excess  will  go  into 
rock  storage  as  Inventory ;  excess  consumption  reverses  the  operation.  Measure 
up  the  pile  of  rock  on  hand  at  the  end  of  the  month  and  see  whether  the  num- 
ber of  tons  of  rock  actually  on  hand  is  equivalent  to  balance  shown  by  "Raw 
Materials"  Account  Nos.  1  and  2.  This  process  of  verification  of  production  and 
consumption  should  be  observed  every  month  in  all  Departments. 

Clinker  and  Cement  : 

It  is  generally  preferred  and  advisable  to  keep  the  manufacture  of  clinker 
distinct  and  separate  from  the  manufacture  of  cement,  in  that  each  process 
takes  the  raw  or  semi-finished  material  from  the  previous  state  and  delivers  it 
to  the  next  process.  Thus,  for  instance,  the  "Finishing  Department"  takes  the 
clinker  from  the  kilns  at  the  average  clinker  value,  which  has  already  been  de- 
termined through  the  medium  of  the  "Clinker  Burning"  account.  In  addition 
to  this  charge  for  clinker,  the  cement  grinding  cost  would  comprise  the  charge 
for  all  labor  employed  in  the  department,  gypsum  and  all  other  material,  both 
repair  and  operating,  and  its  proper  proportion  of  whatever  expense  was  neces- 
sary for  the  plant  to  undergo  before  it  could  transform  clinker  into  cement  and 
deliver  the  cement  into  the  stock  house  bins. 

Before  leaving  this  subject,  are  are  one  or  two  minor  points  that  should 
be  considered.  First  is  the  relation  which  each  department  bears  to  the  other 
of  buyer  and  seller.  The  Stores  Department  buys  from  outside  people  and  sells 
to  everybody  in  the  plant.  The  Quarry  buys  the  rock  as  it  lies  in  the  ground 
and  adds  to  this  cost  the  cost  of  labor  and  expense,  which  enables  it  to  sell  the 
rock  to  the  Raw  Grinding  Department ;  the  Raw  Grinding  Department  takes  the 
stone  that  it  buys  and  after  preparing  it  for  burning,  sells  it  to  the  Clinker 
Department,  and  so  on.  In  order  to  record  these  various  transactions,  the  Ac- 
counting Department  must  have  daily  reports,  showing  how  much  each  has 
bought  and  how  much  they  have  sold  or  transferred.  These  reports  will  serve 
as  a  basis  for  certain  bookkeeping  entries  and  these  entries  must  be  checked 
up  and  verified  by  physical  measurement  of  the  material  on  hand  at  the  end 
of  the  month,  before  reports  can  be  accepted  as  correct. 


»i 


40 


IX 

Plant  Overhead  and  Indirect  Expenses 

In  the  preceding  chapters,  we  have  to  a  large  extent  dealt  with  direct 
expenses  only,  leaving  the  items  of  indirect  expenses  still  to  be  considered.  Let 
us  try  to  understand  the  distinction  between  direct  and  indirect  expense.  For 
the  purpose  of  the  present  discussion,  let  us  assume  that  direct  expense  be  de- 
fined as  expense  that  the  company  has  already  incurred  concurrently  with  the 
production  of  their  product,  while  indirect  expense  may  be  considered  as  ex- 
pense that  is  not  yet  incurred,  but  which,  nevertheless,  we  will  have  to  pay  some 
day,  as,  for  instance : 

Taxes. 
Insurance. 

Depreciation : 

Buildings.  , 

Machinery  and  equipment. 

Depletion : 
Quarries. 

Contingencies : 

Flooding  of  quarries. 
Strikes. 
Shut-downs. 
Safety  Devices. 
Etc.,  Etc. 


i 


Let  us  first  take  up : 

Taxes: 

A  cement  company  cannot  make  cement  without  paying  taxes  on  its  plant 
and  real  estate.  Nevertheless,  it  pays  this  tax  only  once  a  year.  It  would  be 
manifestly  unfair  to  load  the  costs  of  the  day  or  even  the  month  in  which  the 
whole  year's  taxes  are  paid  with  that  tremendous  burden  of  taxes.  We  know 
with  reasonable  accuracy  what  the  amount  of  this  tax  will  be  for  the  year. 
Therefore,  we  must  charge  into  our  costs  1/12  of  the  taxes  we  will  have  to  pay 
for  the  year,  crediting  such  monthly  charge  to  "Reserve  for  Taxes." 

Insurance  : 

Insurance  is  generally  paid  in  advance,  in  which  case  the  insurance  pay- 
ment may  be  carried  among  assets  as  a  deferred  charge  (see  "Deferred 
Charges"),  1/12  to  be  absorbed  monthly  and  credited  to  such  deferred  charge. 

41 


fli 


Depreciation  : 

Of  all  overhead  charges  probably  the  most  important  is  depreciation,  being, 
as  it  usually  is,  the  largest.  Hardly  any  two  writers — ^be  they  engineers  or  ac- 
countants— agree  as  to  the  proper  methods  of  handling  this  subject.  However, 
it  is  a  problem  for  both  the  accountant  and  the  engineer.  The  engineer  is  the 
one  best  qualified  to  say  just  what  percentage  of  cost  or  value  shall  be  included 
in  monthly  costs,  to  the  end  that  when  the  machinery  or  equipment  has  reached 
the  scrap  period,  the  "Reserves"  Account  shall  show  a  stun,  plus  scrap  value, 
sufficient  for  replacement. 

When  the  engineer  or  superintendent  has  made  his  calculations  it  is  then 
up  to  the  accountant  to  properly  distribute  this  charge  over  the  various  de- 
partments or  operations.  However,  as  soon  as  we  begin  to  "split  hairs"  and 
distribute  this  monthly  charge  over  various  departments  or  operations,  we 
immediately  open  up  an  avenue  of  guesswork  or  arbitrary  calculations  that  only 
tend  to  cloud  the  real  issue,  and,  in  effect,  compound  estimates.  The  monthly 
charge  in  one  amount  covering  all  departments  added  to  the  Total  Direct  Cost 
of  Production  as  ascertained,  is  believed  to  be  all  that  is  necessary.  This  sub- 
ject is  dealt  with  in  detail  in  Chapter  XVI,  which  see. 

Depletion  : 

« 

Quarries  will  not  last  always.  There  will  come  a  time  when  other  lands 
will  have  to  be  purchased  (possibly  at  a  distance  from  the  mill)  to  warrant  a 
continuous  and  certain  supply  of  raw  materials.  It  is  true  that  from  the  very 
nature  and  topography  of  some  quarries,  the  land  value  after  the  quarrying 
operations  have  exhausted  the  supply  of  rock  or  other  materials  is  greater — 
from  the  viewpoint  of  the  builder — than  when  purchased  for  quarry  purposes. 
In  a  very  hilly  country  where  deposits  are  mined  this  is  especially  true.  In  such 
a  case  a  charge  for  depletion  would  hardly  be  in  order,  assuming  there  were 
other  lands  containing  desired  deposits  in  the  immediate  vicinity.  The  manu- 
facturer possessing  practically  an  unlimited  source  of  supply  would  have  a  very 
low  charge  for  depletion.  Each  plant  must  be  governed  by  local  or  individual 
quarrying  conditions,  as  no  fixed  rule  can  be  laid  down  for  your  guidance,  except 
that  some  charge  should  be  made  in  monthly  costs  and  credited  to  "Reserve 
for  Depletion"  until  such  reserve  equals  the  purchase  price,  or  a  sum  sufficient 
to  purchase  similar  deposits. 

Contingencies  : 

In  every  industry  there  are  certain  contingencies  that  cannot  be  foreseen 
with  any  degree  of  accuracy,  yet  with  which  we  are  likely  to  be  confronted  at  any 
time :  strikes,  loss  by  fire  not  fully  covered  by  insurance,  accidents  to  employes 
or  outsiders  not  fully  covered  by  liability  insurance,  flooding  of  quarries,  etc., 
are  items  that  may  properly  come  under  the  head  of  contingencies.  It  will  be 
seen,  therefore,  that  some  provision  should  be  made  to  care  for  such  contingencies 
by  a  charge  to  Profit  &  Loss,  (Financial  Expenses)  and  a  credit  to  "Reserve  for 
Contingencies. ' '  The  amount  to  be  so  charged  is  a  question  that  will  have  to  be 
dealt  with  by  each  individual  member  company,  as  no  hard  and  fast  rule  covering 
this  item  can  be  laid  down  or  adhered  to. 


42 


Monthly  Closing  of  Manufacturing  or  Operating 

Accounts 

Before  the  various  Departmental  and  Auxiliary  Accounts  can  be  closed,  it 
is  imperative  that  all  labor,  material  and  indirect  expenses  be  included.  To  in- 
sure this  an  orderly  and  systematic  procedure  in  posting  from  the  various  Dis- 
tribution Sheets  should  be  observed,  assuming  postings  from  Purchase  Journal, 
Cash  Book  and  General  Journal  have  been  made.  These  accounts  affecting  all 
departments  are  posted  first  and  the  following  order  is  recommended : 

(1)  Materials  and  Supplies  Distribution  Sheet. 

(2)  Payroll  Distribution  Sheet. 

(3)  Repair  Labor  Distribution  Sheet. 

(4)  Miscellaneous  Distribution  Sheet. 

(a)     Coal. 

Gypsum. 

Power. 

Coal  preparing. 

Floating  Gang. 

Gypsum. 

R.  R.  and  Switching. 


(5) 


(&) 
(c) 
id) 
(e) 
if) 
(9) 
Reserves. 


AUXILIARY  ACCOUNTS 


As  the  Auxiliary  Accounts  affect  all  Departmental  accounts  it  is  impera- 
tive that  they  be  closed  before  considering  the  Departmental  Accounts  proper, 
therefore  assuming  that  all  items  appearing  in  the  "General  Ledger"  column 
of  Distribution  Sheets  1  and  2  have  been  posted,  the  first  account  to  be  closed 
would  be: 

Machine,  Blacksmith  and  Carpenter  Shop: 

The  basis  for  distribution  of  this  account  is  from  the  "Repair  Labor  Dis- 
tribution" sheet,  charging  the  proper  departments  and  crediting  this  account. 
If  separate  shops  are  maintained  and  accounts  kept  in  the  General  Ledger  for 
each  shop  it  might  be  well  to  make  out  three  distribution  sheets,  otherwise  one 
Distribution  Sheet  headed  "Machine,  Blacksmith  and  Carpenter  Shops"  is  all 
that  would  be  necessary.  From  the  various  Miscellaneous  Distribution  Sheets 
post  and  close  the  following  accounts  in  the  order  given : 

Coal. 

Power,  Light  and  Water. 

Coal  Preparing. 

Floating  Gang. 

Gypsum. 

43 


II 


DEPARTMENTAL  ACCOUNTS 


-i 


i 


The  system  as  outlined  contemplates  the  subdivision  of  the  one  Operating 
or  Manufacturing  Account  into  several  accounts  as  below: 


Raw  Material  No.  1 
Raw  Material  No.  2 
Raw  Grinding 
Clinker  Burning 
Finished  Grinding 
Mill  Overhead 
Reserves 
Finished  Cement 


Manufacturing 
or  Operating 
Account 


}= 


=  Bin  Cost. 


It  is  necessary  to  close  these  several  accounts  monthly,  and  for  this  pur- 
pose  the  General  Journal  is  utilized.  In  closing  the  following  procedure  is 
observed : 

Raw  Materials  No.  1  and  No.  2  (Accounts  Nos.  51  and  52) : 

From  the  daily  reports  received  from  the  Raw  Department  the  MiU  Office 
should  report  the  total  units  consumed  for  the  month.  Such  total  consumption 
IS  then  multiplied  by  the  total  unit  cost  of  these  two  accounts  (being  total 
debits  divided  by  total  production),  or  raw  material  cost  for  the  month.  When 
such  cost  per  unit  is  known  General  Journal  Entry  would  be : 

Dr.    Raw  Grinding xxx 

To  Raw  Material  No.  2 xxx 

To  Raw  Material  No.  1 xxx 

Consumption  for  month tons. 

The  resultant  balance  of  the  above  accounts  represents  the  inventory  value, 
and,  in  closing,  is  brought  do^vn  as  inventory  at  beginning  of  next  month's 
operations.  When  raw  material  is  purchased,  and  not  quarried,  such  purchases, 
plus  freight  and  unloading  charges,  should  be  charged  to  a  "Raw  Material  In- 
ventory"  account;  each  month  this  account  should  be  credited  with  the  con- 
sumption for  the  month  at  an  average  price,  the  same  as  coal  or  any  other  ma- 
terial. If  materials  are  purchased,  it  would  be  necessary  to  open  in  the  Cost 
Ledger  (Raw  Material  Section)  but  few  accounts.     (See  Chart  of  Accounts.) 

If  materials  are  quarried  on  a  royalty  basis,  the  royalty  charge  would,  of 
course,  be  charged  to  Raw  Material  operating  account  Nos.  51  and  52.  Deple- 
tion of  quarries  should  also  be  charged  to  these  accounts. 

The  unit  of  cost  in  this  Department  is  based  on  tons  quarried  or  pur- 
chased. 

Raw  Grinding  {Account  No.  61) : 

This  account  begins  with  the  cost  of  Raw  Materials  No.  1  and  No.  2  and 
two  lines  should,  therefore,  be  left  at  top  in  posting  to  this  account  to  provide 
for  debits  coining  through  General  Journal  at  the  end  of  month.  The  Raw 
Grinding  Department  Account,  as  its  title  implies,  carries  all  costs  incident  to 

44 


raw  grinding.  As  but  few,  if  any,  plants  carry  an  inventory  in  the  raw  end 
(other  than  crushed  rock),  the  total  of  this  account  (after  transferring  "Raw 
Material"  accounts  to  Nos.  1  and  2)  is  closed  into  "Clinker  Burning"  Account 
by  the  following  entry  through  the  General  Journal : 

Dr.    Clinker  Burning  xxx 

To  Raw  Grinding xxx 

Raw  Grinding  Cost  for  month  transferred. 

The  unit  of  cost  in  this  Department  is  based  on  the  number  of  barrels  of 
clinker  produced. 

Clinker  Burning  (Account  No.  62) : 

This  Account  begins  with  the  Clinker  Inventory  (in  barrels  and  dollars  and 
cents)  brought  down  from  the  previous  month.  In  bringing  down  such  inven- 
tory balance,  it  is  evident  that  this  inventory  carries  various  elements  of  costs. 
Assume  that  in  a  month  we  produce  100,000  barrels  of  clinker  at  a  total  cost 
of  $40,000,  or  $.3846  per  barrel,  plus  inventory  of  4000  barrels  at  a  value  of 
$2000;  from  mill  reports  we  find  that  only  95,000  barrels  were  ground  at  an 
average  cost  of  $.3846  per  barrel,  or  a  cost  for  clinker  ground  or  consumed  of 
$36,537  (which  would  be  credited  at  the  end  of  month  to  this  account  and 
debited  to  "Clinker  Grinding"  Account),  we  should  then  have  a  balance,  or  in- 
ventory, of  9000  barrels  at  an  average  cost  of  $.3846  or  $3463.00,  which  would  be 
carried  down  to  next  month's  operations  as  the  first  item,  but  instead  of  bring- 
ing it  down  as  one  item  the  amount  should  be  segregated  to  show  the  elements 
of  cost  included  in  such  inventory.  In  other  words,  there  is  labor,  power,  sup- 
plies, etc. 

This  division  is  necessary  for  the  following  reasons : 

Assume  we  produce  1,000,000  barerls  of  clinker  and  the  labor  cost,  up  to  the 
clinker  period,  was  $50,000,  and  we  only  ground  one-half  of  this  clinker,  or  500,- 
000  barrels,  the  total  labor  cost,  applicable  to  the  month's  operation,  would  be 
but  $25,000.    The  same  rule  applies  to  all  other  elements  of  cost. 

The  formula  for  segregating  the  inventory  items  is  simple : 

Add  number  of  barrels  produced  in  month  to  previous  Inventory;  divide 
Inventory  at  end  of  month  by  this  total ;  the  result  will  be  the  percentage  of 
each  element  in  Inventory;  next  add  element  of  cost  in  previous  Inventory  to 
similar  element  of  cost  for  month  and  divide  by  percentage  previously  ob- 
tained.   The  result  will  be  the  element  of  cost  in  Inventory  at  end  of  month. 

A  hypothetical  treatment  of  one  element  of  cost  in  Clinker  Inventory,  t.  e., 
"Operating  Labor,"  is  given  on  the  page  following. 


M 


Fob  Example: 

Clinker  Inventory  first  of  month  shows,  4,000  bbls. 

Operating  Labor  (up  to  and  including  Clinker  Burning)  in 
Clinker  Inventory  is: 

Operating  Labor — Raw  Grinding,  $  500.00 

Operating  Labor— Clinker  Burning,  100.00  $600.00 

The  Operating  Labor  (up  to  and  including  Clinker  Burning) 

in  a  production  of  100,000  " 

Amounts  to: 

Operating  Labor— Raw  Grinding,  5,000.00 

Operating  Labor— Clinker  Burning,  1,150.00  6,150.00 


TOTAtS, 

Clinker  Ground, 

Inventory  of  Clinker  at  end  of  month, 
therefore 

104,000  : 9,000=8654 

8654X6,750. 00= net  value  of 

Operating  Labor  in  Clinker  Inventory, 

Net  Labor  Cost  in  Clinkzb  Consttued, 


104,000 "     6,750.00 
95,000  " 


9,000" 


584.15 


95,000  "  $6,165.85 


The  Clinker  Burning  Account  under  the  above  conditions  (using  hypothetical  figures)  would  be  as 
below: 


;!! 


CLINKER  BURNING. 


Pl 


1 

Inventory, 

Raw  Material  Prop'n, 

4,000  bbls. 

$     400.00 

31  Clinker  Grinding, 
Consumption  for  mo.. 

Op'g  Labor,  Prop'n, 

600.00 

95,000  bbls.  transf'd. 

$36,537.00 

Rep.  Labor,  Prop'n, 

50.00 

Balance,  Inventory, 

Op'g  Sup.,  Prop'n, 

70.00 

End  of  month, 

Rep.  Sup.,  Prop'n, 

30.00 

9,000  bbls.  @  3846; 

Power,  Prop'n, 

100.00 

Raw  Material  Prop'n, 

900.00 

Fuel,  Prop'n, 

750.00 

Op'g  Labor,  Prop'n, 

584.15 

31 

Raw  Grind'g  Acc't., 

Rep.  Labor  Prop'n, 

225.55 

Production  for  mo. 

100,000  bbls. 

24,000.00 

Op'g  Supplies,  Prop'n, 

157.40 

Op'g  Labor  for  mo.. 

1,150.00 

Rep.  Supplies  Prop'n, 

119.42 

Rep.  Labor  for  mo., 

550.00 

Power,  Prop'n, 

372.12 

Op'g  Sup.  for  mo.. 

750.00 

Fuel,  Prop'n, 

1,104.36 

Rep.  Sup.,  for  mo.. 

350.00 

Power, 

1,200.00 



Fuel, 

104,000  bbls. 

10,000.00 

$40,000.00 

104,000  bbls. 

$40,000.00 

Average  cost  .  3846  per  barrel. 

Inventory,  bro't  down,  9,000  bbls.  $  3,463.00 

(S^regate  as  shown  above) 

46 


Proof:  40,000X8.654  =  3,463.00 


If  Cost  Sheet  is  prepared  at  Mill  Office,  segregation  of  Clinker  Inventory 
should  be  compared  with  General  Office  figures  each  month  to  prove  MUl  calcula- 
tions. In  preparing  ''Monthly  Statement  of  Costs"  (Form  No.  7)  the  net  ele- 
ment  of  cost  only  would  be  considered.  For  instance,  let  us  take  Fuel  cost  up 
to  and  including  Clinker  Burning: 

Value  of  Fuel  in  Inventory  first  of  month . .  $     750.00 
Fuel  charge  for  current  month: 

From  Raw  Grinding $  2,000.00 

From  Clinker  Burning 10,000.00 

12,000.00 

12,750.00 
Value  of  Fuel  in  Inventory,  end  of  month.  1,104.36 
Net  Fuel  cost  for  month $11,645.64 

As  Form  No.  7  calls  for  a  division  of  Net  Fuel  cost  for  the  month  as  between 
Coal  Drying,  Raw  Material  Drying  and  Clinker  Burning,  it  wUl  be  necessary  to 
figure  the  proportion  of  each;  this  is  arrived  at  by  following  method: 

$12,000.00  :  $  2,000.00=16.66%     $  1,940.16 
12,000.00  :    10,000.00=83.34%        9,705.48 

$11,645.64 

It  will  be  noted  that  only  the  total  of  Raw  Grinding  Account  is  brought 
forward  to  Clinker  Burning  Account,  but  this  $24,000.00  is  made  up  of  several 
elements  of  cost,  therefore  to  arrive  at  total  labor  cost  up  to  and  including 
Clinker  Burning,  it  will  be  necessary  to  refer  back  to  Raw  Grinding  Account  in 
computing  the  Clinker  Inventory.  In  other  words,  the  Raw  Grinding  charge 
of  $24,000.00,  if  brought  over  in  detail  (and  there  is  no  real  necessity  for  so 
doing),  the  items  would  appear  (using  hypothetical  figures)  as  below: 

Raw  Material  $10,000.00 

Operating  Labor 5,000.00 

Operating  Supplies  1,000.00 

Repair  Labor  2,000.00 

Repair  supplies 1,000.00 

Power 3,000.00 

Fuel 2,000.00 

$24,000.00 

As  the  above  division  appears  in  the  Raw  Grinding  Account,  these  figures 
can  be  easily  added  to  the  same  items  in  Clinker  Inventory  at  first  of  month, 
and  charges  in  Clinker  Burning  for  the  month,  the  three  items  constituting  gross 
Clinker  Cost  for  month. 

All  inventories  of  Raw  Material  and  Clinker  should  be  verified  by  physical 
inspection  monthly. 

Clinker  Grinding  (Account  No.  63) : 

This  account  begins  with  the  transfer  of  "Clinker"  consumed  from 
"Clinker"  account,  therefore,  a  line  should  be  left  at  top  of  this  account  to 
post  this  item  at  end  of  month.  Beginning  with  the  month's  operations  we 
have  all  costs  incident  to  Clinker  Grinding  from  various  Distribution  Sheets. 
This  account  will  then  give  the  Total  Direct  Cost  of  Production  for  the  month. 

47 


It 


This  is  the  figure  for  which  the  Mill  Superintendent  is  directly  responsible.  The 
cost  to  this  point  represents  actual  money  spent  and  materials  consumed — no 
estimates  or  overhead  items  whatsoever.  Any  grave  fluctuation  from  costs  for 
preceding  months  should  demand  immediate  investigation. 

This  account  is  closed  into  "Finished  Cement"  Account  by  the  following 
Journal  entry : 

Dr.    Finished  Cement  Account xxx 

To  Clinker  Grinding  Account xxx 

Production  of  cement  for  the  month, 
bbls.  @  

BfiLL  Overhead  (Account  No.  64) : 

As  the  title  of  this  account  implies,  it  carries  all  indirect  charges  relating 
to  production,  i.  e.,  General  Superintendence,  Mill  Office  salaries  and  expense, 
Laboratory  salaries  and  expenses,  expenses  during  shutdown  period  (other 
than  repairs  and  maintenance),  and  any  other  items  which  cannot  be  charged 
to  any  accounts  preceding  this.  It  is  closed  out  monthly  by  a  charge  to  "Fin- 
ished Cement ' '  account  through  the  General  Journal : 

Dr.    Finished  Cement  Account xxx 

To  Mill  Overhead xxx 

Overhead  expense  for  month. 

Reserves  (Account  No.  65) : 

This  account  carries  all  reserves  or  items  of  cost  not  actually  disbursed  or 
consumed,  but  which  do  accrue  from  month  to  month,  such  as  Taxes,  Insurance, 
Depreciation,  etc.  These  charges  are  made  through  the  medium  of  Reserves  Dis- 
tribution Sheet.  (See  Form  24.)  It  is  closed  monthly  by  following  entry 
through  General  Journal : 

Dr.  Finished  Cement  xxx 

To  Reserves xxx 

Total  Reserve  Costs  for  Month 

Finished  Cement  Account  (Account  No.  66) : 

This  account  controls  the  Mill  Ledger  and  Cost  Sheet.  It  will  be  noted  that 
it  has  been  charged  with  the  cement  produced  during  the  month  at  direct  cost 
of  production  (from  "Clinker  Grinding"  Account),  also  Mill  Overhead  and 
Reserve  Accounts ;  the  total  representing  Bin  Cost.  It  is  closed  into  the  Cement 
Inventory  Account  No.  31  at  the  end  of  the  month  by  the  following  entry 
through  the  General  Journal : 

Dr.     Cement  Inventory , xxx 

To  Finished  Cement  Account xxx 

Total  Cement  Cost  for  month, 

bbls.  @   

It  will  be  noted  that  the  foregoing  relate  only  to  montlihj  closing.  Yearly 
closing  entries  are  no  different,  except  that  in  addition  to  the  closing  of  the 
Operating  or  Manufacturing  Accounts,  all  Profit  and  Loss  Accounts  are  closed 
into  "Profit  and  Loss"  Account  No.  41.  The  balance  of  this  Account  represents 
"Net  Profit"  or  "Net  Loss"  and  is  closed  into  "Surplus"  Account.  Any 
dividends  declared  would  be  charged  to  "Surplus"  Account  and  credited  to 

"Dividend"  Account. 

48 


XI 

Preparation  of  Monthly  Statements 

Any  system  of  cost  finding  that  does  not  permit  of  knowing  costs,  cer- 
tainly not  later  than  the  fifth  of  the  month,  must  be  considered  defective.  In 
the  majority  of  cement  plants  such  costs  are  not  known  until  the  Cost  Sheet 
is  prepared.  As  the  Cost  Sheet  carries  all  costs  in  detail,  its  preparation  nat- 
urally takes  considerable  time.  As  many  plants  do  not  get  this  sheet  until  the 
10th  or  15th  of  the  month,  it  follows  that  costs  are  not  known  until  they  become 
"ancient  history."  No  company  would  care  to  wait  until  a  schedule,  listing 
amounts  due  by  individual  customers,  had  been  drawn  off  from  the  Customers' 
Ledger  before  it  could  know,  in  total,  the  amount  due.  He  knows  as  soon  as 
he  gets  his  General  Ledger  trial  balance  just  what  is  owing  or  owed.  Later 
a  trial  balance  of  the  Customers'  Ledger  or  Creditors'  Ledger  gives  the  details. 
In  like  manner  he  should  know  his  costs  by  departments,  in  total,  as  soon  as  he 
gets  his  General  Ledger  trial  balance.  Later,  from  the  trial  balance  of  his 
Cost  Ledger,  the  Cost  Sheet  may  be  prepared.  Therefore,  to  expedite  the  prep- 
aration of  such  statements  as  will  reflect  the  monthly  costs  in  total,  there  has 
been  devised  certain  controlling  accounts  termed  "Factory  Controls."  The 
accounting  profession  is  indebted  to  Frank  Broaker,  C.  P.  A.,  No.  1,  of  New 
York,  for  this  most  excellent  feature.  In  this  system  of  accounts  we  will  call 
such  controlling  accounts  the  "Manufacturing"  or  "Operating"  account,  and 
that  we  may  know  such  manufacturing  costs  by  Departments,  this  account  has 
been  subdivided  by  the  opening  up  of  the  following  accounts  in  the  General 
Ledger,  i.  e. : 


Raw  Material  No. 
Raw  Material  No. 

Raw  Grinding 
Clinker  Burning 
Clinker  Grinding 
Mill  Overhead 
Reserves 
Finished  Cement 


Raw  material  costs ;  controls 
quarry  section  of  Cost  Ledger. 

Controls  mill  costs 
■  in  mill  section  of 
Cost  Ledger. 


In  addition  to  the  above  the  following  Auxiliary  accounts  are  maintained  in 
the  General  Ledger: 


Power,  Light  and  Water. 
Coal  Preparing. 
Machine,  Blacksmith  and 

Carpenter  Shops. 
Floating  Gang. 
R.  R.  and  Switching. 


Closed 

monthly  into 
■  Operating 
accounts,  above 
referred  to. 


Assuming  all  Auxiliary  accounts  have  been  distributed  and  closed  and  the 
Operating  accounts  finally  closed  into  Finished  Cement  account,  and  that  cer- 
tain Trading  accounts  have  finally  been  closed  into  "Profit  and  Loss"  account 
No.  1  (which  carries  as  a  credit  the  gross  profit  for  the  month,  and  to  date),  a 


>» 


I 


49 


trial  balance  of  the  General  Ledger  should  be  taken,  considering  only  the  items 
affected  by  the  month  under  review.  From  this  trial  balance,  supplemented  by 
certain  statements  of  facts  as  to  inventories,  etc.,  there  is  prepared  the  follow- 
ing accounts: 

Trading  and  Profit  and  Loss  Statement. 

Balance  Sheet. 

Monthly  Statement  of  Costs. 

Monthly  Statement  of  Operations. 

Monthly  Statement  of  Cost  of  Cement  in  Bulk, 
Cloth  and  Paper. 

Let  us  now  consider  the  preparation  of  the  above  accounts. 

Trading  and  Profit  and  Loss  Account — Trading  Section  (See  Form  No.  6) : 

This  account  is  the  form  approved  by  Accounting  Societies,  the  United  States 
Government,  and  has  become  a  standard.  The  first  item  apearing  on  this  state- 
ment is  Inventory  of  Cement  at  first  of  month,  in  barrels  and  dollars  and  cents. 
This  is  obtained  from  the  previous  month's  statement  or  the  statement  of  facts. 
Next  the  production  for  the  month,  in  barrels,  and  the  cost.  This  is  represented 
by  the  "Finished  Cement"  Account  in  the  trial  balance.  Take  this  off  and  check 
the  item  in  the  trial  balance.  These  two  items  should  be  added,  the  total  rep- 
resenting cement  to  be  accounted  for,  and  also  gives  average  cost  per  barrel. 
Next  enter  the  total  sales  for  the  month  in  barrels  and  amount  of  sales.  This  is 
taken  from  the  trial  balance,  being  "Cement  Sales"  account;  check  this  item  on 
trial  balance. 

From  the  figures  now  entered  we  work  back ;  deduct  the  number  of  barrels 
06M  frotm  the  total  to  be  accounted  for  and  the  balance  will  represent  the 
number  of  barrels  to  be  entered  opposite  the  fourth  item,  "Inventory  End  of 
Month."  Now  multiply  the  number  of  barrels  that  should  he  in  inventory  by 
average  cost  per  barrel  as  extended  in  third  item  and  we  have  the  inventory 
value.  Enter  this  amount  and  extent  average  cost  per  barrel,  which  will  be  the 
same  as  in  the  third  item.  Deducting  the  inventory  at  the  end  of  the  month 
from  the  third  item,  we  have  "Cost  of  Sales"  or  bin  value  of  the  cement  sold, 
at  average  price  per  barrel,  previously  extended.  The  difference  between  ' '  Cost 
of  Sales"  and  "Sales"  represents  "Gross  Profit,"  which  extend.  Dividing 
this  amount  by  number  of  barrels  sold  gives  gross  profit  per  barrel. 

The  Trading  Account  is  now  complete  and  furnishes  all  necessary  data  to 
be  used  in  closing  the  trading  accounts  in  General  Ledger  into  Trading  Account 
No.  31,  by  following  entry  through  General  Journal: 

Cement  Inventory xxx 

To  Finished  Cement  Account xxx 

Production  for  month  transferred. 

Trading  Account  xxx 

To  Cement  Inventory  Account xxx 

Cost  of  Sales  for  month. 

Cement  Sales xxx 

To  Trading  Account xxx 

Sales  for  month  transferred. 

Trading  Account xxx 

To  Profit  and  Loss  Account xxx 

Gross  profit  for  month  transferred. 

60 


Profit  and  Loss — (Section  I)   {See  Form  No.  6) : 

The  first  item  to  be  considered  in  this  section  is  "What  was  the  value,  in 
the  bin,  of  the  cement  sold?"  This  has  been  arrived  at  through  the  Trading 
Account  and  is  represented  by  "Cost  of  Sales"  item;  therefore,  bring  this 
amount  down  from  the  Trading  Section  as  the  first  item.  To  this  cost  must 
be  added  the  cost  of  the  packages,  loading  expense  and  handling  of  sacks.  By 
referring  to  the  trial  balance  we  have  "Bag  Cost"  for  the  month;  enter  this 
item  and  check  off  on  trial  balance.  From  the  trial  balance  next  take  totals  of 
"Packing  and  Loading"  and  "Sack  Handling  expense";  check  these  two 
items.    If  we  foot  the  four  items  just  listed  we  now  have  "Cost  on  Board  Cars." 

Profit  and  Loss — (Section  II)  {See  Form  No.  6) : 

Now  from  trial  balance  fill  in  all  items  under  the  three  groups  of  expenses, 
i.  e.,  "Selling  Expense,"  "General  Expense"  and  "Financial  Expense,"  ex- 
tending total  of  the  three  groups  in  column  under  "Cost  on  Board  Cars"  (un- 
less the  cost  per  barrel  for  each  item  is  desired).  Footing  up  this  column  we 
now  have  the  "Total  Cost  of  Cement  Shipped"  during  the  month.  Now  bring 
down  the  total  sales  from  Trading  Section  and  place  on  line  with  "Sales." 
The  difference  between  "Sales"  and  "Total  Costs"  represents  "Net  Operating 
Profit"  and  closes  the  first  two  sections  of  the  Profit  and  Loss  Account.  Now 
divide  the  various  totals  making  up  "Total  Cost"  by  the  number  of  barrels 
shipped  and  we  have  the  total  cost  per  barrel;  dividing  the  "Net  Operating 
Profit"  by  barrels  shipped  we  have  net  profit  per  barrel,  which,  added  to  total 
cost  per  barrel,  should  equal  the  sale  price  per  barrel. 

Profit  and  Loss — (Section  III)  {See  Form  No.  6) : 

We  now  have  the  Net  Operating  Profit  for  the  month,  but  not  necessarily 
the  Total  Profit.  Bring  down  the  ' '  Net  Operating  Profit ' '  and  to  this  add  any 
extraneous  items  appearing  in  trial  balance,  i.  e.,  "Rents  from  Dwellings,"  "In 
terest  on  Investments,"  etc.  These  items  added  to  Net  Operating  Profit  gives 
"Total  Estimated  Profit  for  Month."  "Estimated"  is  used  because  the  sum 
total  of  the  twelve  months'  estimated  profits  will  not  exactly  equal  the  "Net 
Profit"  shown  by  the  final  Trading  and  Profit  and  Loss  account  for  a  year's 
operations  to  be  prepared  after  all  accounts  are  finally  closed.  This  difference, 
however,  will  not  be  very  great,  and  as  the  Profit  and  Loss  accounts  are  not 
closed  monthly,  final  figures,  only,  go  to  Surplus  Account. 

All  Profit  and  Loss  items  appearing  in  trial  balance  should  now  have  a 
check  mark  against  each  amount.  The  unchecked  items  represent  the  "balance 
of  accounts"  and  are  Balance  Sheet  items  to  be  used  in  preparing  the  Balance 
Sheet.  When  the  last  item  ("Estimated  profit  for  month")  is  entered  on  Bal- 
ance Sheet  and  the  Assets  and  Liabilities  balance,  the  Balance  Sheet  thus  proves 
the  Trading  and  Profit  and  Loss  Statement,  but  correctness  of  Trading  and 
Profit  and  Loss  Statement  is  not  known  until  Balance  Sheet  is  prepared. 


COSTS  PER  barrel 
("This  month"  and  "to  date") 


The  costs  for  the  current  month  are  easily  obtained,  but  the  "to  date" 
figures  are  a  little  more  complex.    "To  date"  figures,  wherever  used,  contemplate 


61 


it 


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1    >l 


costs  since  last  closing  period  or  the  beginning  of  the  fiscal  year.  The  simplest 
way  to  get  these  costs  is  to  draw  off  a  second  trial  balance  carrying  cumulative 
TOTALS,  as  the  first  trial  balance  drawn  off  dwelt  only  with  the  month's  opera- 
tions. From  this  second  trial  balance  a  Trading  and  Profit  and  Loss  Statement, 
covering  the  operations  to  date,  could  be  prepared,  and  by  figuring  the  costs 
"to  date"  on  such  cumulative  Profit  and  Loss  Statement  the  costs  per  barrel 
thus  ascertained  could  be  utilized  for  the  monthly  Trading  and  Profit  and  Loss 
Account.  This  is  the  ideal  way.  Another  method  is  to  gather  these  totals 
from  Previous  Trading  and  Profit  and  Loss  accounts  by  adding  the  three,  four, 
or  even  six,  months  together.    Either  method  can  be  used. 

Balance  Sheet  {See  Form  No.  10) : 

It  will  be  noted  that  this  form  carries  three  columns  for  the  placement  of 
items.  There  is  an  orderly  arrangement  of  balance  sheet  items  that  should  be 
observed;  a  proper  place  for  every  item  and  a  meaning  for  such  placement. 
It  is  to  give  proper  expression  to  monthly  statements  that  standard  forms  have 
been  evolved  and  the  form  in  which  any  statement  is  set  up  reveals  the  training 
a  bookkeeper  or  accountant  has  received. 

ASSETS  are  stated  in  the  order  of  their  realization  and  LIABILITIES 
in  the  order  of  their  liquidation.  The  Balance  Sheet  is  divided  into  three  gen- 
eral groups,  both  as  to  Assets  and  Liabilities,  that  is,  Current  or  Quick  Assets 
contra  to  Current  or  Immediate  Liabilities,  Plant  or  Fixed  Assets  against 
Capital,  and  finally  Deferred  Assets  against  Surplus  in  the  business. 

Monthly  Statement  of  Costs  {See  Form  No.  7)  : 

The  figures  used  in  this  statement  up  to  "Bin  Cost"  are  obtained  from  the 
various  Operating  or  Manufacturing  accounts.  To  get  these  costs  head  up  an 
analysis  sheet  or  columnar  sheet  with  headings :  Labor,  Supplies,  Fuel  (Drying 
Raw  Material  and  Burning  Clinker).  Go  through  the  Operating  accounts  (ex- 
cept Auxiliary  accounts)  and  extract  all  items  or  elements  of  cost  represented 
by  the  headings  on  the  analysis  sheet.  Foot  these  columns  and  then  add  the 
elements  of  cost  in  the  Clinker  Inventory  at  the  first  of  the  month.  Next  deduct 
elements  of  cost  in  Clinker  Inventory  at  the  end  of  the  month.  The  final  or 
net  figures  represent  the  elements  of  cost  actually  consumed  during  the  month. 

Power,  Light  and  Water  is  represented  by  the  total  of  this  account,  less 
the  proportion  charged  to  Auxiliary  departments,  Packing  and  Loading,  and 
the  amount  included  in  Clinker  Inventory.  All  other  items  are  easily  obtained. 
This  statement  must  agree  with  total  costs  as  shown  by  Trading  and  Profit  and 
Loss  Statement. 

Monthly  Statement  of  Operations  {See  Form  8) : 

This  is  easily  prepared  from  the  various  Manufacturing  or  Operating  ac- 
counts. Clinker  costs  again  offer  some  difficulties,  however,  and  again  net  costs 
or  figures  must  be  used.  This  account  should  also  prove  out  with  the  Trading 
and  Profit  and  Loss  Statement. 

With  some  companies  the  two  statements  described  in  the  foregoing  may 
serve  the  purpose  of  a  Cost  Sheet,  representing,  as  they  do,  the  totals  which 

sa 


would  appear  at  the  bottom  and  right-hand  side  of  the  cost  sheet  as  now  de- 
signed, detail  only  being  omitted.  Compare  these  statements  with  cost  sheet 
form  illustrated  in  "Operations  of  A.  B.  C.  Cement  Company." 

Monthly  Statement  of  Costs  of  Cement  {See  Form  No.  9) : 

This  form  is  almost  self-explanatory,  merely  calling  for  the  proper  place- 
ment of  certain  items  appearing  in  the  total  column  of  the  Trading  and  Profit 
and  Loss  Statement,  these  being  segregated  as  to  bulk,  cloth  or  paper  by  cer- 
tain percentages  shown  in  the  first  section  of  this  statement.  This  statement 
should  serve  as  a  base  for  quoting  cement  in  bulk  or  in  packages.  The  "to 
date ' '  costs,  plus  the  desired  profit,  should  determine  the  sale  price. 

Cost  Sheet  {Sec  Printed  Form) : 

These  sheets  carry  the  detail  of  costs  for  the  month  and  to  date  and  sup- 
plement and  segregate  the  totals  shown  by  Monthly  Statement  of  Operations 
and  Cost.  Two  sheets  are  contemplated,  one  for  the  Quarry  Costs  and  another 
for  Mill  Costs.  Where  raw  material  is  purchased  a  quarry  cost  sheet  is  not 
necessary.  Neither  would  a  cost  sheet  be  required  where  the  operations  are 
but  few.  Such  costs  can  readily  be  showTi  at  top  of  Mill  Cost  sheet.  In  fact, 
all  elements  of  cost  in  any  quarry  can  be  so  shown,  but  if  cost  of  operations 
(i.  6.,  stripping  and  clearing,  drilling  and  blasting,  steam  shovel  loading,  hand 
loading  and  hauling,  locomotive  hauling,  etc.)  are  desired,  a  separate  sheet  or 
schedule  would  be  necessary. 

If  a  Quarry  Cost  Sheet  is  desired  it  should  be  prepared  from  a  trial  balance 
drawn  off  from  Quarry  section  of  Cost  Ledger.  This  would  give  the  month's 
costs.  To  ascertain  costs  "to  date"  another  or  cumulative  trial  balance  should 
be  drawn  off.  These  cost  sheets  must  agree  with  total  costs  shown  by  "Raw 
Material"  Accounts  No.  1  and  No.  2  in  General  Ledger.  The  Mill  Cost  Sheet, 
like  the  Quarry  Cost  Sheet,  is  prepared  from  a  trial  balance  of  Mill  section 
of  Cost  Ledger.  The  proposed  form  permits  of  expansion  or  contraction,  de- 
pendent upon  just  how  much  detail  is  desired.  The  elements  of  cost  (i.  e..  Raw 
Material,  Labor,  Supplies,  Fuel,  Power,  Light  and  Water,  Overhead  and  Re- 
serves) at  top  of  sheet  are  fixed  and  are  the  same  for  all  plants.  It  is  in  the 
operations  (shown  at  left  side  of  sheet)  that  expansion  is  permissible  and  more 
detailed  costs  made  possible.  In  the  Clinker  Department  one  company  may 
desire  to  segregate  clinker  burning  into  several  operations,  to  permit  of  their 
knowing  Clinker  Burning  cost,  Clinker  Cooling  Cost,  Clinker  Storing  Cost, 
etc.  Another  plant  may  be  satisfied  to  have  costs  shown  as  one  operation,  i.  e., 
"Clinker  Burning."  Therefore,  in  the  preparation  of  the  sheet  here  submitted, 
space  has  been  left  in  each  department  to  permit  of  additional  operations  be- 
ing shown.  In  the  printed  form  to  be  supplied  members,  only  the  more  salient 
and  usual  operations  are  shown. 

*    At  the  bottom  of  the  sheet  details  of  cost  in  certain  Auxiliary  Departments 
should  be  shown,  for  purpose  of  comparison,  i.  e. : 

Coal  Preparing.     (If  Coal  is  used.) 

Power,  Light  and  Water.     (If  generated.) 

Packing  and  Loading. 

Sack  Handling. 

R.  R.  and  Switching.     (If  operated.) 

53 


Ii 


I 


XII 
Deferred  Charges 

In  nearly  all  plants  there  is  usually  a  shutdown  period  varying  from  one 
to  three  months,  such  shutdown  period  usually  taking  place  in  the  winter  months 
or  just  pnor  to  beginning  the  fiscal  year.  These  inactive  periods  may  be  for  the 
purpose  of  general  overhauling  and  repairs,  or  on  account  of  weather  condi- 
tions, or  both.  In  any  event  it  is  necessary  to  provide  for  the  distribution  of 
such  expenses  over  the  remaining  operating  months.  It  would  manifestly  be 
improper  to  charge  all  such  cumulative  costs  in  the  first  month's  operations, 
thus  creating  a  Jiigh  level  of  costs  out  of  all  proportion  to  a  mean  level  of  costs. 
Iherefore,  m  order  to  properly  account  for  the  expenses  incidental  to  the  shut- 
down  period,  we  must  consider  these  expenses  under  two  broad  divisions,  i.  e. : 

Repairs  and  Maintenance. 
Expenses. 

Therefore,  we  will  first  consider : 

Bepairs — Shutdown  Period: 

As  the  repairs  made  during  the  shutdown  period  are  for  the  purpose  of 
putting  the  miU  on  an  efficient  basis  during  the  succeeding  months  of  operation. 
It  is  manifest  that  such  expenses  should  be  pro-rated  over  the  subsequent 
months  of  operation.  To  accomplish  this  two  deferred  accounts  should  be  opened 
m  the  General  and  Cost  Ledger : 

"Repairs— Shutdown  Period— Labor"  (Account  No.  1811). 

"Repairs— Shutdown  Period— Material' '  (Account  No.  1812). 
As  such  repairs  will  be  made  in  various  Departments,  a  more  detailed  sub- 
division of  "Repairs-^Shut  down  Period— Labor"  should  be  made  in  the  Cost 
Ledger ;  the  accounts  below  is  an  example : 

"Repair  Labor— Shutdown  Period — Raw  Grinding." 
"Repair  Material— Shutdown  Period— Clinker  Grinding." 
To  these  accounts  are  charged  all  Repair  Labor  and  Materials  used  during 
the  entire  shutdown  period.  These  accounts  are  carried  as  a  deferred  asset  and 
credited  with  the  amount  absorbed  in  the  succeeding  months'  operations,  it 
being  presumed  that  the  last  credit,  at  the  end  of  the  fiscal  year,  will  wipe  out 
such  accounts. 

To  pro-rate  the  amounts  to  be  absorbed  each  month,  the  next  step  is  to 
estimate  the  operating  period.  If  the  shutdown  period  is  three  months,  we  could 
safely  estimate  the  succeeding  period  of  operation  as  nine  months,  and  we  would, 
therefore,  absorb  1/9  in  each  month  of  operation  through  the  medium  of  "Mis^ 
cellaneous  Distribution ' '  Sheet,  the  entry  being : 

Dr.    Repair  Labor — Raw  Grinding xxx 

Repair  Material — Clinker  Grinding xxx 

To  Repairs— Shutdown  Period— Labor  (Account  No.  1811) . . .  xxx 

To  Repairs— Shutdown  Period— Material  (Account  No.  1812) .  xxx 

(Being  1/9  of  repairs  and  maintenance,  Shutdown  Period.) 

It  will  be  noted  from  the  above  entries  that  the  shutdown  repair  charges 


54 


absorbed  are  added  to  the  current  month's  repair  items,  i.  e.,  if  the  current 
Repair  Labor  for  the  Raw  Grinding  Department  was  $100  and  we  had  a  1/9 
deferred  charge  of  $50.00,  the  total  Repair  Labor  Charge  to  the  Raw  Grinding 
Department  for  the  month  would  appear  on  Cost  Sheet  as  $150. 

Expenses — Shutdown  Period  : 

To  care  for  all  other  expenses  at  the  mill  during  a  shutdown  period,  an  ac- 
count should  be  opened  in  the  Ledger  headed  "Deferred  Expenses— Shutdown 
Period."  To  this  account  is  charged  all  other  expenses  at  mill  during  the  shut- 
down period,  i  e..  Superintendence,  Mill  Office  and  Laboratory  expenses,  etc.  A 
specimen  for  absorbing  a  pro-rata  proportion  of  such  expense  is  given  below : 


Dr. 


Mill  Overhead-Expenses  Shutdown  Period  (Account  No.  647) 

To  Deferred  Expenses,  Shutdown  Period  (Account  No.  1813) 
(Being  1/9  expenses  during  shutdown  period.) 


In  addition  to  the  expenses  actually  incurred  during  a  Shutdown  Period 
there  are  the  items  of  Reserves  constantly  accruing,  and  which  must  be  taken 
care  of  currently.  Such  charges  are  Insurance,  Taxes,  Depreciation,  Depletion, 
etc.  Therefore,  on  the  Reserve  Distribution  Sheet  there  should  be  entered  each 
month  during  such  Shutdown  Period  the  following : 

Dr.    Deferred  Insurance  (Account  No.  1814). 
Deferred  Taxes  (Account  No.  1815). 
Deferred  Depreciation  (Account  No.  1816). 
Deferred  Depletion  (Account  No.  1817). 

To  Reserve  for  Insurance  (Account  No.  241). 
To  Reserve  for  Taxes  (Account  No.  242). 
To  Reserve  for  Depreciation  (Account  No.  243). 
Ro  Reserve  for  Depletion  (Account  No.  244). 
The  above  entry  would  care  for  the  Reserves  accruing  during  a  shutdown 
period. 

As  soon  as  the  plant  begins  operations,  these  deferred  items  should  be  ab- 
sorbed by  the  following  entry  on  the  Miscellaneous  Distribution  Sheet : 

Dr.    Reserves:    Insurance  (Account  No.  241). 
Taxes  (Account  No.  242)  : 
Depreciation  (Account  No.  243). 
Depletion  (Account  No.  244). 
To  Deferred  Taxes  (Account  No.  1815). 
To  Deferred  Insurance  (Account  No.  1814), 
To  Deferred  Depreciation  (Account  No.  1816). 
To  Deferred  Depletion  (Account  No.  1817). 

(Being  1/9  of  Deferred  Reserves  for  shutdown  period.) 

There  may  be  additional  Deferred  Charges  from  time  to  time  occasioned  by 
replacement  of  some  extra  part  or  parts,  which  may  properly  come  under  the 
head  of  Extraordinary  Repairs.  For  instance,  a  belt  costing  $1000  and  hav- 
ing an  estimated  life  of  two  years ;  it  would  be  manifestly  incorrect  to  charge 
the  entire  cost  of  this  belt  to  "Repair  Materials"  in  the  month  replacement 
took  place.  It  should  be  charged  to  a  Deferred  Account  in  General  Ledger 
headed  "Extraordinary  Repairs— Deferred, "  absorbing  1/24  each  month  as  the 
charge  to  "Repair  Materials."  Such  deferred  items  should  be  dealt  with  as 
determined  by  individual  cases,  the  treatment  here  being  purely  advisory. 

6S 


XIII 
Forms 

The  forms  illustrated  on  the  following  pages  have  been  printed  by  the 
Association,  with  the  exception  of  the  following: 

Stores  Ledger  Cards  (Complete  outfit,  including  cards  and 'cabinet 
will  be  ordered  when  requested) 

Stores  Requisitions 
Work  Tickets  or  Time  Cards 
Job  Order  Envelopes 
Voucher  Checks. 


These  will  be  printed  by  Asso- 
ciation where  desired. 


The  following  books  should  be  prepared  and  supplied  by  Members: 
General  Ledger 
Cash  Book 
General  Journal 
Purchase  Journal 
Coal  Record 
Gypsum  Record 

If  desired,  the  Association  will  have  any  of  the  above  books  made  up  for 
Member  Companies. 

The  forms  printed  by  the  Association  will  be  supplied  members  at  actual 
cost. 


I 


56 


General  Office 
Records 


57 


FORM  No.  1 


DR. 


GENERAL 


Dv 


PARTICULARS 


Folio 


ACCOUNTS  RECEIVABLE 


Gross 


Discount 


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I 

a 
I 

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2 

Z 

I 

a 

3 


I 


DEPOSITS 


IttNafl.     2nd  Natl. 


CASH  BOOK 


FORM  No.  1— Continued 


FOR  THE  MONTH  OF 


CR. 


Day 


PARTICULARS 


Folio 


ACCOUNTS  PAYABLE 


Gron 


Diacount 


Not 


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Ledgor 


Cost 
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1 

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a 

1 

3 


1 

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£ 


CHECKS 


1st  Nan.     and  Natl. 


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68 


FORM  No.  6 


Trading  and  Profit  and  Loss  Statement 


For  the  Month  of 


TOTALS 

Cost  p«r  Bt)l. 

PARTICULARS 

Unit           1 

Amount 

This  Mo. 

To  Date 

Invintoht: 
Finished  Cement: 
Inventort: 
Cost  of  Sales: 
Gross  Profit: 

First  of  Month. 

Production  for  Month. 

Total 
End  of  Month. 

Carried  Down. 

Sales: 

Cost  of  Sales: 
Bag  Cost: 
Packing  &  Loading: 
Sack  Handling: 

Selling  Expenses: 
General  Expenses: 

* 
• 

FinancialExpenses  : 

Net  Operating 
Proftt: 

Sales  for  Month: 
Extraneous  Income: 

Brought  Down. 

Cost  on  Board  Cabs. 

Sales  Office  Salaries. 
Sales  Office  Expenses. 
Salesmen's  Salaries. 
Salesmen's  Expenses. 
Advertising. 
Cbmrnifwions. 
Association  Dues. 
Sundry  Expenses. 

Executive  Salaries. 
Executive  Expenses. 
Office  Salaries. 
Office  Expenses. 
Stationery  &  Printing. 
Telegraph  4  Telephone. 
Postage. 
Rent  &  Light. 
Sundry  Expenses. 

Interest  on  Bonds. 
Interest  on  Loans. 
Bad  Debts. 
Discount  on  Sales. 

Less  Discount  on  Purchases. 

Total  Costs: 

Carried  Down. 

Net  Operating  Profit. 
Brought  Down. 

Rental  Dwellings. 
Interest  on  Investment. 
Sales  Scrap. 
Commissary  Profit. 

■ 

Total  Net  Profit: 

For  Month. 

FORM  No.  7 


Summary  Statement  of  Costs 


For  the  Month  of 


64 


ELEMENT  OF  COST 

TOTALS 

Per  bbl.  Coment 

Unit 

Amount 

This  Mo. 

To  Date 

Raw  Material: 

Labor: 

Supplies: 

Fuel: 

Power,  Light  and 
Water: 

Mill  Overhead: 

Reserves: 
Trading: 

Profit  and  Loss: 

Sales: 
Extraneous  Income 

No.  L 
No.  2. 
Gypsum. 

Total 

Operating. 
Repair. 

Total 

Operating. 
Repair. 

Total 

Drying  Raw  Material, 
Drying  Coal. 
Clinker  Burning. 

Total 

Total 

Total  Direct  Cost  of  Production: 

Superintendence. 

Mill  Office  and  Stores. 

Laboratory. 

Machine  Shop  Overhead. 

Shut  Down  Expenses. 

Miscellaneous. 

Total 

Insurance. 
Taxes. 

Depreciation. 
Contingencies. 

Total 

Total  Bin  Cost: 
Inventory             1st  mo. 

Total 
Inventory            end  mo. 

Cost  of  Sales: 
Sack  Cost. 

Packing  and  Loading. 
Sack  Handling. 

Cost  on  Board  Cabs: 
Selling  Expenses. 
General  Expenses. 
Financial  Expenses. 

Total  Cost  of  Cement  Sold: 
Net  Operating  Profit,  carried  down. 

For  Month. 

Net  Profit  bro't  down 

tons 
tons 

bbls 

bbls 

bbls 

bbls 

bbls 
bbls 

bbls 

Total  Net  Profit 

for  month,  estimated. 

05 


FORM  No.  8 


Summary  Statement  of  Operations 


For  the  Month  of 


I 


PARTICULARS.  DEPARTMENTS  or  OPERATIONS 

TOTALS 

Cost  per  Unit 

Unit 

Amount 

TMsMo. 

To  Date 

Raw  Material: 

Raw  Gbindino  Deft. 

cunkeb  bubniho 
Dept: 

Clinkeb  GaiNDiNa 
Dept: 

Mill  Otsbheao: 

RxsKBVXs: 
TBAoma: 

Pkofit  and  Loss: 

Sales: 
extranxottb  income : 

No.  1. 
No.  2. 

Total 

Raw  Material. 

Crushing,  Drying,  Mixing  and  Grinding 

Total 
Burning,  Cooling  and  Storing. 

Gross  Clinker  Cost: 
Add.  Inventory  1st  of  mo. 

Total 
Inventory,  end  of  month. 

Net  Cost  or  Clinkeb  Ground. 

Gypsum. 
CUnker  Grinding. 

Total 

Total  Direct  Cost  of  Pboouction. 

Superintendence. 

Mill  Office  and  Stores. 

Laboratory. 

Machine  Shop  Overhead, 

Shut-down  Expenses. 

Miscellaneous. 

Total 

Insurance. 

Taxes. 

Depreciation. 

Contingencies. 
Depletion. 

Total 

Total  Bin  Cost. 
Inventory,           Ist  of  mo. 

Total 
Inventory,           end  of  mo. 

Cost  of  Sales: 
Sack  Cost. 

Packing  and  Loading. 
Sack  Handling. 

Cost  on  Board  Cabs: 
Selling  Expenses. 
General  Expenses. 
Financial  Expenses. 

Total  Cost  of  Cement  Sold: 
Net  Operating  Profit,  carried  down. 

For  Month. 

Net  Operating  Profit,  brot.  down. 

tons 
tons 

bbls 

bbis 

bbls 
bbls 

bbls 

bbls 

Total  Net  PaonT: 

for  month,  estimated. 

66 


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n 


FORM  No.  10 
Balance  Sheet 


ASSETS 

Cash: 

First  National  Bank. 
Second  National  Bank. 
Petty  Cash. 

Bills  Receivable: 
Trade. 
Sundry. 

Accounts  Receivable: 

Less,  Reserve  for  Doubtful  Accounts. 
Sundry. 

Inventories: 

Finished  Cement. 
Raw  Materials: 

Coal. 
Gypsum. 
Stores. 
Investments: 

Sundbt: 

TOTAL  CURRENT  ASSKl'S: 

Deferred  Assets: 

Work  in  Process: 

R.  M.  No.  1. 
R.  M.  No.  2. 
Clinker. 
Stores  Parts. 

Prepaid  Items: 

Taxes. 

Insurance. 
Capital  Assets: 

Packages: 

Cloth. 

Paper. 

Deferred  Cost 

Mill  Buildings. 
Dwellings. 

Less  Reserve  for  Depreciation. 

• 

Mill  Machinery. 

Less  Reserve  for  Depreciation. 
Plant  Real  Estate. 
Quarry  Properties. 

Less  Reserve  for  Depletion. 

Quarry  Equipment. 

Less  Reserve  for  Depreciation. 

XX 
XX 

XX 
XX 

XX 
XX 

XX 

XX 
XX 

XX 

XX 
XX 

XX 
XX 

XX 
XX 

XX 
XX 
XX 

XX 
XX 

XX 
XX 
XX 
XX 

XX 
XX 

XX 
XX 

XX 

XX 

XX 

XX 
XX 
XX 

XX 

XX 

XX 
XX 

XX 
XX 

XX 
XX 

XX 
XX 

XX 
XX 

XX 
XX 

XX 
XX 

$xx 

68 


FORM  No.  10— (Continued) 


As  at  January  31.   1917 


LIABILITIES 


Accrued  Items: 

Wages  (2nd  week). 
Taxes. 
Insurance. 
Bond  Interest. 

Bills  Payable: 

Accrued  Interest. 

Loans  Payable: 

Accounts  Payable: 
Trade. 
Sundry. 


TOTAL  CURRENT  LIABILITIES: 

Reserves: 

Contingencies. 


Capital  Liabilities: 


Bonds. 
Capital  Stock: 


Surplus: 


Authorized. 
Unissued. 

Outstanding. 


January  1st. 

Less  Dividend  No.  1. 


Profit  for  Jany.  per  P, 
&  L.  Statement. 


XX 
XX 


XX 
XX 


XX 


XX 
XX 


XX 
XX 


XX 
XX 
XX 
XX 


XX 
XX 


XX 
XX 


XX 


XX 


XX 


XX 


XX 


XX 


XX 


XX 


XX 


$xx 


69 


FORM  No.  11 


A.  B.  C.  PORTLAND  CEMENT  CO. 


No- 


.191 


The  attached  check  is  in  full  settlement  of  items  or  invoices  listed  below. 

No  Receipt  Necessary. 


Date 


PARTICULARS 


Ainount 


Date 


PARTICULARS 


Ainount 


DETACH  AND  DKPOSIT  PBOMPTLT 


No.. 


.191 


A.  B.  C.  PORTLAND  CEMENT  CO. 


Pay  to 

the  order  of_ 


-  Dollars 


To  the 
First  National  Bakk, 
Chicago,  111. 


Treasurer 


Mill  Records 


^  ( 


REVKBSX  or  CHECK 
70 


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FORM  No.  14 


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FORM  No.  17 


> 


Emp.  No._ 

- 

TIME  CARD 

191 

(Shop  or  Dep't) 

Name 

T?i»tp 

Order  No. 

Department 

CHARACTER  OF  WORK 

Time 

Amount 

TOTAL  HOURS 

Approved 

. 

• 

Foreman. 

lit 


^fi 


I 


76 


77 


FORM  No.  18 


Ortkr  No.                                                                                           191 

WORK  ORDER  COSTS 

Date  Co^^rAMt-mA                                                                                                                                                         t 

91 

•••*»"-•-  — 

SUMMARY 

LABOR 

DATE 

EMP.  NO. 

DEPARTMENT 

AMOUNT 

MATERIAL 

DATE 

REQ'N  NO. 

MATERIAL 

AMOUNT 

Total  G 

Mt. 

Charge  "Stores"  Account. 

$ @ each 

Envelope  for  "Work  Order"  CosU. 
78 


FORM  No.  19 

1 

able  of  Power  Distribution                           Total  Power 

H.P. 

DEPARTMENT  OR  OPERATIONS 

H.  P. 

DeliverMi  or 

Contumed 

% 

Monthly 

Proportion  of 

TobU  Power  Cost 

Raw  Material  No.  1: 

Drilling  and  Blasting  (Air) 
Steam  Shovel  (Air), 
Pumping  Station. 

Raw  Matebial  No.  2: 

Drilling  and  Blasting  (Air) 
Steam  Shovel  (Air). 
Pumping  Station. 

Raw  Ghinding: 

Crushing. 
Drying. 
Mixing. 
Grinding. 

CuNKEB  Bubning: 

Kilns. 
Fans. 
Coolers. 
Conveyors. 

Clinker  Grinding: 

Grinding. 
Cement  Storing. 

Coal  Preparing: 

Dryers. 
Grinding. 

Packing  and  Loading: 

Sack  Handling: 

Machine  Shop: 

Miscellaneous: 

Village  Lighting. 

• 

79 


FORM  No.  20 


Pay  Roll  Distribution  Sheet 


For  Month  of 


GENERAL 
Ladgar  Accounts 


Raw  Material: 


Raw  Material  No.  2: 
Raw  Grindino: 


CuNKER  Burninq: 

Clinker  GRiNDma: 
Mill  Overhead: 

Power  Light  and  Water: 

Coal  Preparing: 

Machine  Shop: 

B.  S.  AND  Carpenter  Shop: 
Floating  Gang: 

Packing  and  Loading: 
Sack  Handlino: 


Credit  Pat  Roll: 


COST 
Ledger  Accounts 


Stripping  and  Clearing. 
Drilling  and  Blasting. 
Hand  Loading. 
Steam  Shovel  Loading. 
Locomotive  Hauling. 
Cleaning  Up. 
Tracks  and  Cars. 

Same  as  above. 

Crushing. 

Drying. 

Mixing. 

Grinding. 

Storing. 

Burning. 
Cooling. 
Storing. 

Grinding. 
Cemeni  Storing. 

Superintendence. 
Mill,  Office  and  Stores. 
Laboratory. 

Engineers. 

Firemen. 

Coal  and  Ash  Handlers. 

Unloading  and  Storing. 

Diying. 

Grinding. 

Conveying. 

Foreman. 
Machinists. 

Same  as  Machine  Shop 

Foreman. 
Laborers. 

Packers. 

Truckmen. 

Foreman. 

Sorters. 
Cleaners. 
Repairws. 
Tiers. 


DR. 
Coot 


XXX 
XXX 
XXX 
XXX 
XXX 
XXX 
XXX 


XXX 
XXX 
XXX 
XXX 
XXX 

XXX 
XXX 
XXX 

XXX 
XXX 

XXX 
XXX 
XXX 

XXX 
XXX 
XXX 

XXX 
XXX 
XXX 
XXX 

XXX 
XXX 


XXX 
XXX 

XXX 
XXX 
XXX 

XXX 
XXX 
XXX 
XXX 


OR. 
Gonoral 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


CR. 
General 

Ledger 


XXX 


XXX 


XXX 


FORM  No.  21 


Repair  Labor  Distributing  Sheet 


For  Month  of 


GENERAL 
Lodger  Accounts 

COST 
Ledger  Accounts 

DR. 

Cost 

Ledger 

V 

DR. 
General 
Ledger 

V 

CR. 
General 
Ledger 

Raw  Material  No.  1: 

Stripping  and  Clearing. 
Drilling  and  Blasting. 
Hand  Loading. 
Steam  Shovel  Loading. 
Locomotive  Hauling, 
Etc. 

XXX 
XXX 

XXX 
XXX 
XXX 
XXX 

XXX 

Raw  ALlterial  No.  2: 

Same  as  above. 

Raw  Grinding: 

Crushing. 
Drying. 
Mixing. 
Grinding. 

XXX 
XXX 
XXX 
XXX 

XXX 

Clinker  Burning: 

Burning. 
Cooling. 
Storing. 

;  XXX 

XXX 
XXX 

XXX 

Clinker  Grinding: 

Grinding. 
Cement  Storing. 

XXX 
XXX 

XXX 

Power,  Light  and  Water: 

Engines. 

Boilers. 

Mechanical  Stokers. 

Ash  and  Coal  Handling  Machy. 

xxx 

XXX 
XXX 
XXX 

XXX 

Coal  Preparino: 

Crane. 

Dryers. 

Grinding  Machinery. 

XXX 
XXX 
XXX 

XXX 

Packing  and  Loading: 

XXX 

XXX 

Sack  Handling: 

XXX 

XXX 

Employes'  Dweij.tngs: 

Exi>ense. 

XXX 

Mill  Overhead: 

Machine  Shop  Overhead,  being 
balance  of  undistributed 
items. 

XXX 

XXX 

Credit  Machine  Shop  (or 
B.  S.  orCarp.): 

Being  total  Debit  to  this  ac- 
count as  shown  by  Summary 
Account  in  Auxiliary  Section 
of  Cost  Ledger. 

XXX 

XXX 

XXX 

XXX 

SI 


I 


I 


FORM  No.  22 


Operating  Material  and  Supplies  Distribution  Sheet         For  MontK  of 


GENERAL 
LadflM' Accounts 

COST 
Ladgtr  Aeeounts 

OR. 

CmI 

LMigw 

V 

DR. 
GMMral 
LMlgw 

V 

CR. 
GMwral 

Raw  Matebial  No.  1: 

Stripping  and  Clearing. 
Drilling  and  Blasting. 
Steam  Shovel  Loading. 
Locomotive  Hauling, 
Etc. 

XXX 

XXX 
XXX 
XXX 
XXX 

XXX 

Raw  Material  Xo.  2: 

Same  as  above. 

Raw  Gbindinq: 

Crushing. 
Grinding. 

XXX 
XXX 

XXX 

CUNKXB  BURNINO: 

Burning. 
Cooling. 

XXX 
XXX 

XXX 

Clinkeb  Gbindinq: 

Grinding. 

XXX 

XXX 

Mill  Ovxrhxad: 

Mill  Office  and  Stores. 
Laboratory. 

XXX 
XXX 

XXX 

Power,  Lioht  an©  Water: 

Oil  and  Grease. 

Brooms. 

Waste. 

XXX 
XXX 
XXX 

XXX 

Coal  Przpartno: 

Oil  and  Grease. 
Shovek. 

XXX 
XXX 

XXX 

Pacstnq  and  Loaoino: 

XXX 

XXX 

Sack  Handlinq: 

xzx 

XXX 

Raw  Material  No.  1: 

Drilling  and  Blasting. 

zxx 

XXX 

Raw  Material  No.  2: 

Stripping    and    Clearing     (ex- 
plosives). 

XXX 

XXX 

CREDIT  Stores: 

XXX 

CREDIT  Explosives: 

(If  separate  Inventory  Account 
is  carried). 

XXX 

XXX 

XXX 

XXX 

88 


FORM  No.  23 


Repair  Materials  and  Supplies  Distribution  Sheet      For  Month  of 


GENERAL 
Ledger  Accounts 


Raw  Material  No.  1: 


Raw  Material  No.  2: 


Raw  Grinding: 


Clinker  Burning: 


Clinker  Grinding: 


Power,  Light  and  Water: 


COST 
Ledger  Accounts 


Steam  Shovel  Loading: 
Locomotive  Hauling. 
Drilling  and  Blasting. 


Stripping  and  Clearing. 
Tracks  and  Cars. 


Coal  Preparing: 


Packing  &  Loading 


Sack  Handling: 


EuFLOTEs'  Dwellings: 


CREDIT  Stores: 


Crushing. 

Drying. 

Grinding. 


Burning. 
Cooling. 


Grinding. 


Boilers. 

Engines. 

Mechanical  Stokers. 

Coal  and  Ash  Handling  Machy 


Crane. 

Dryers. 

Grinding  Machinery. 


DR. 

Cost 

Ledger 


XXX 
XXX 
XXX 


XXX 
XXX 


XXX 
XXX 
XXX 


XXX 
XXX 


XXX 


XXX 
XXX 
XXX 
XXX 


XXX 
XXX 
XXX 


XXX 


XXX 


XXX 


DR. 
General 
Ledger 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


CR. 
General 
Ledger 


XXX 


xxxx 


88 


FORM  No.  24 


Reserve  Distribution  Sheet 


For  Month  of 


GENERAL 
Ledger  Accounts 

cost 

Ledger  Accounts 

DR. 
Cwt 

V 

DR. 
G«iar«l 
Ledger 

V 

CR. 
General 
Ledger 

Raw  Material  No.  1: 

Depletion. 
Depreciation. 

XXX 
XXX 

XXX 

Reserve  for  Depletion: 

. 

XXX 

Reserve  for  Depreciation: 

Quarry  Equipment. 

XXX 

Raw  Materlu.  No.  2: 

Same  as  above. 
l-12th  Annual  Charge. 

Raw  Material  No.  1: 

Insurance. 
Taxes. 

XXX 
XXX 

XXX 

Reserve  for  Insurance: 

XXX 

Reserve  for  Taxes: 

XXX 

Raw  Material  No.  2: 

Same  as  above. 

l-12th  Est.  Annual  Charge. 

Reserves: 

Depreciation,  Biuldings. 
Depreciation,  Machinery. 
Insurance. 
Taxes. 

XXX 
XXX 
XXX 
XXX 

XXX 

Employes'  Dwellings: 

Depreciation. 

Insurance. 

Taxes. 

XXX 
XXX 
XXX 

Reserve  for  Depreciation: 

Buildings. 

XXX 

Reserve  for  Depreciation: 

Machinery. 

XXX 

Reserve  for  Depreciation: 

Dwellings. 

XXX 

Reserve  for  Insurance: 

Liability. 

XXX 

Reserve  for  Insurance: 

Fire. 

XXX 

Reserve  for  Taxes: 

l-12th  Est.  Annual  Charge. 

XXX 

XXX 

XXX 

XXX 

84 


FORM  No.  25 


(Miscellaneous)  Distribution  Sheet 


For  Month  of 


GENERAL 
Ledger  Accounts 


COST 
Ledger  Accounts 


Raw  Material  No.  1: 

Raw  Material  No.  2: 
Raw  Grindinq: 


CuNKER  Burning: 

Clinker  Grinding: 
Coal  Preparing: 

Packing  and  Loading: 

Sack  Handling: 

Power,  Light  and  Water: 

Raw  Material  No.  1. 

Raw  Material  No.  2: 
Raw  Grinding: 
Coal  Preparing: 

Power,  Light  and  Water: 
Coal: 

CuNKER  Burning: 
Coal  Preparing: 

Raw  Material  No.  1: 

Mill  Overhead: 
Floating  Gang: 

CuNKER  Grinding: 
Gtpsum: 


Drilling  and  Blasting  (Air). 
Steam  Shovel  Loading  (Air). 

Stripping  and  Clearing. 

Crushmg. 
Drying. 
Mixing. 
Storing. 

Burning. 
Cooling. 
Storing. 

Grinding. 
Cement  Storing. 

Drying. 

Grinding. 

Conveying. 


DR. 

Co*t 

Ledger 


Power  Distribution  for  Month. 

Drilling  and  Blasting. 
Steam  Shovel  Loading. 
Locomotive  Hauling. 

Same  as  above. 

Drying. 

Drying. 
Unground  Coal. 

Steam  Coal. 

Coal  Distribution  for  Month. 


Transfer  of  Clinker. 

Burning  Fuel  Cost  for  Month. 

Hand  Loading. 
Cleaning  up. 

Maintenance  Yards. 


Distribution  of  Floating  Gang 


XXX 

XXX 

XXX 

XXX 
XXX 
XXX 
XXX 

XXX 
XXX 
XXX 

XXX 
XXX 

XXX 
XXX 
XXX 

XXX 

XXX 


XXX 
XXX 
XXX 


XXX 

XXX 
XXX 

XXX 


Labor  for  Month. 
Gypsum. 


XXX 


XXX 
XXX 


XXX 


XXX 


XXX 


85 


t 

■''^^.i.ll 


DR. 
General 
Ledger 


XXX 
XXX 

XXX 

XXX 
XXX 

XXX 
XXX 
XXX 


CR. 
General 
Ledger 


XXX 


XXX 


XXX 
XXX 


XXX 


XXX 
XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


XXX 


•  I 


_J 


\#-v 


XIV 
Package  Accounting 

Probably  no  one  feature  connected  with  the  Cement  Industry  has  received 
the  attention  or  has  been  the  subject  of  more  discussion  than  that  of  Sacks. 
At  any  meeting  or  gathering  of  cement  men,  the  sack  problem  will  eventually 
arise.  The  increased  and  constantly  rising  costs  of  sacks  during  the  past  year 
has  but  added  to  the  problem  of  properly  treating  sack  cost  in  accounts.  When  it 
was  possible  to  purchase  sacks  at  less  than  10c  and  recover  10c  from  the  cus- 
tomer for  sacks  not  returned,  no  loss  ensued.  Even  under  this  condition,  the 
accounting  of  sacks  presented  many  vexing  problems.  With  the  increased  cost, 
however,  new  conditions  must  be  met  and  accounting  procedure  formulated  that 
will  eliminate  any  loss  arising  where  shipments  are  made  in  sacks  costing  more 
than  10c.  To  meet  this  condition,  two  plans  are  submitted,  both  plans,  however, 
accomplish  the  same  result,  i.  e.,  the  prevention  of  any  loss  arising  from  increased 
cost  of  sacks. 

To  Absorb  Cost  in  Excess  of  10c : 

This  plan  is  the  result  of  a  Resolution  offered  by  a  Member  Company  at  a 
meeting  of  the  Committee  on  Uniform  Cost  Accounting  held  at  Atlantic  City, 
June  29th,  and  contemplates  the  inclusion  in  costs  any  excess  sack  cost  above 
10c.  Under  this  method,  it  will  be  necessary  to  carry  the  difference  between 
10c  and  the  actual  cost  of  sacks,  as  a -deferred  item,  to  be  absorbed  as  new  sacks 
are  shipped  out.  It  follows,  therefore,  that  it  will  be  necessary  in  utilizing  this 
method  to  separate  sack  shipments  as  between  second-hand  and  new  sacks. 

In  applying  this  method,  let  us  assume  the  following  statement  of  facts: 

100,000  sacks  are  purchased  —at  20c $20,000.00 

50,000  sacks  are  used  in  shipments         — at  20c 10,000.00 

25,000  sacks  are  returned  by  customers — at  10c 2,500.00 

Therefore,  the  entries  to  record  the  above  transaction  would  be  as  follows : 

Sacks  Purchased:  100,000  at  20c $20,000 

Dr.  Sack  Inventory $10,000.00 

Dr.  Deferred  Sack  Loss 10,000.00     {Account  No.  182.) 

To  Accounts  Payable $20,000.00 

Sacks  Shipped:  50,000  at  20c $10,000 

Dr.  Accounts  Receivable 5,000.00 

Dr.  Accrued  Sack  Loss 5,000.00  {Account  No.  421.) 

To  Sack  Inventory 5,000.00 

To  Deferred  Sack  Loss 5,000.00 

Sacks  Returned:  25,000  at  10c $2,500.00 

Dr.  Sack  Inventory 2,500.00 


To  Accounts  Receivable. 


Sack  Inventory: 

New         —50,000  at  10c $5,000.00 

2nd  hand— 25,000  at  10c 2,500.00 


75,000 $7,500:00 


2,500.00 


(as  ascertained  from 
Deferred  Sack  Loss 
Account.) 


86 


After  the  foregoing  entries  are  made,  the  General  Ledger  accounts  affected 
would  appear  as  below: 

Sack  Inventory. 


To  Accounts  Pay- 
able   100,000    $10,000.00 

To  Accounts  Re- 
ceivable   25,000        2,500.00 


By  Accounts  Re- 
ceivable  ....  50,000    $  5,000.00 


Accounts  Payable. 


By   Sack   Inven- 
tory   


20,000.00 


Deferred  Sack  Loss. 


To  Accounts  Pay-                                     |l     By  Sack  Loss  Ac- 
able  100,000    $10,000.00    1 1  count 50,000 


5,000.00 


Accrued  Sack  Loss. 


To  Deferred  Sack 
Loss  


$  5,000.00 


Accounts  Receivable. 


To  Sack  Inventory $  5,000.00    ||    By  Sack  Inventory 


2,500.00 


Trial  Balance. 

Sack  Inventory— 75,000  Sacks $  7,500.00 

Accounts  Payable 

Deferred  Sack  Loss 5,000.00 

Accrued  Sack  Loss  (to  be  included  in  costs) 5,000.00 

Accounts  Receivable  2,500.00 

$20,000.00 


$20,000.00 


$20,000.00 


In  utilizing  this  method,  it  will  be  necessary  to  adjust  the  Sack  Inventory 
to  a  10c  basis,  i.  e.,  assuming  at  the  time  of  the  adoption  of  this  method  that  Sack 
Inventory  or  Sack  Account  showed  an  asset  balance  of  100,000  sacks,  with  a  book 
value  of  $8,000.00,  or  8c  each ;  the  entry  to  write  up  the  value  of  sacks  to  a  10c 
basis  would  be: 


Dr.  Sack  Inventory  . 
To  Surplus 


.$2,000.00 


$2,000.00 


If  the  present  Inventory  shows  an  excess  over  10c  it  would  be  necessary  to 
charge  Deferred  Sack  Loss  with  the  difference  and  credit  Inventory. 

Under  the  foregoing  method,  only  the  excess  above  10c  would  be  included 
in  the  costs.  The  accrued  sack  loss — on  basis  of  sacks  shipped  for  month — 
would  be  charged  to  Account  No.  421,  "Sack  Cost". 

87 


tl 


This  is  a  simple  method  of  handling  this  item,  but  there  still  remains  the 
fact  that  total  sack  cost  is  not  shown  in  the  Profit  and  Loss  Statement,  and 
before  the  total  "Cost  of  Cement  Shipped  for  Month"  can  be  shown,  10c  must 
be  mentally  added  to  such  total  cost  before  final  cost  can  be  known.  This  is 
especially  true  in  the  preparation  of  the  Summary  Account  showing  total  costs 
of  Cement  in  Bulk,  Cloth  or  Paper. 

Let  us  now  take  up  the  second  method: 

Total  Package  Cost  to  be  Incx.uded  in  Costs  : 

From  a  strict  accounting  standpoint,  this  method  would  seem  the  purer  and 
is  the  one  advocated  by  the  Cost  Accountant. 

In  the  Manufacture  of  Cement  (or  any  other  commodity)  we  have  but 
three  elements  to  consider,  i.  e.: 

(1)  Raw  Material, 

(2)  Productive  Labor, 

(3)  Overhead  or  burden   (non-productive  labor,  materials  and 

expenses). 

In  the  Marketing  of  Cement  (or  any  other  commodity)  there  enters,  as 
additional  costs,  the  following : 

(1)  Selling  Expenses, 

(a)     Salaries, 

(6)     Expenses, 

(c)     Packages  (Sacks). 

(2)  General  Expenses, 

(3)  Financial  Expenses. 

Of  the  above,  we  are  concerned  with  but  one  item  of  cost  in  this  discussion, 
i.  e.,  Packages  or  Sacks.  There  is  absolutely  no  difference  in  the  treatment  of 
this  item  in  the  cement  industry  from  that  employed  in  other  lines  of  industry, 
except,  that  in  the  purchase  of  sacks  we  do  not  confine  ourselves  to  purchases  of 
sacks  from  the  manufacturer  exclusively,  but,  by  long  established  practice,  and 
trade  conditions,  we  have  agreed  to  purchase  from  customers  such  second-hand 
sacks  as  are  returned  to  us  in  good  serviceable  condition. 

If  the  Companies  did  not  agree  to  re-purchase  such  second-hand  sacks  from 
their  customers,  the  customer  would  then  have  to  sell  his  sacks  in  the  open  mar- 
ket for  what  they  would  fetch ;  this  would,  in  effect,  create  a  dealer  in  second- 
hand sacks.  It  is  to  assure  customers  a  fixed  price  for  his  sacks  that  the  long 
existing  arrangement  between  customer  and  the  manufacturer  of  cement  for 
the  re-purchase  of  sacks  has  been  continued,  and,  from  an  economic  standpoint, 
there  is  no  reason  for  the  abrogation  of  such  an  agreement. 

The  foregoing  is,  of  course,  purely  a  hypothetical  condition,  and  is  merely 
given  as  an  illustration  of  conditions  from  an  accounting  viewpoint.  Let  us 
now  take  up  the  accounting  of  sacks  upon  the  foregoing  hypothesis : 

Sacks  are  purchased — 

(a)     New,  from  the  manufacturer. 
(&)     Second-hand,  from  customers. 

88 


I 


We  also  purchase  coal  (another  large  item  of  cost)  but  in  the  treatment  of 
this  item  we  follow  proper  accounting  methods  or  principles.  What  is  the  pro- 
cedure? We  open  an  Inventory  Account,  debiting  it  with  all  purchases  (at 
varying  prices)  and  credit  this  account  with  the  consumption  (at  an  average 
price).    Why  treat  the  sack  account  differently? 

As  sacks  are  purchased  either  new  or  second-hand,  debit  Sack  Account,  and 
when  shipped  out  (whether  new  or  second-hand),  why  not  credit  Sack  Inven- 
tory Account  (at  an  average  price)  and  charge  Sack  Cost  Account?  The  result- 
ant balance  of  this  account  would,  at  all  times,  represent  the  Inventory  value 
(at  an  average  price),  just  as  your  Stores,  Coal,  Gypsum  or  other  materials  and 
supplies  are  taken.  Sacks  are  just  as  much  an  item  of  cost  as  Labor,  Coal  or 
Supplies  (in  fact  greater).  If  the  customer  desires  his  shipment  packed 
in  cloth,  or  paper,  he  should  pay  for  the  service,  and  such  charge  should  be 
represented  in  the  total  cost  figure,  the  same  as  any  other  element  of  cost.  By 
including  such  sack  cost  in  monthly  costs,  we  get  a  total  cost  figure  on  which  we 
can  meet  or  fix  a  sale  price. 

If  the  price  of  labor,  coal  or  other  materials  advance,  such  increased  cost 
is  reflected  in  the  montUy  cost  figures,  as  ascertained  from  the  monthly  Cost 
Sheet  and  Profit  &  Loss  Account,  but  in  none  of  these  statements  is  the  sack  cost 
now  shown  or  known.  To  quote  a  price  for  cement  in  bulk,  paper  or  cloth,  a 
mass  of  mental  arithmetical  stunts  is  necessary  to  arrive  at  an  estimated  (and 
often  erroneous)  sale  price  for  cement  so  packed  or  in  bulk. 

Should  this  method  be  adopted,  it  would  be  necessary  to  show  in  Trading 
Account  as  "Sales"  the  proportion  of  Cement  and  Sacks,  the  total  of  the  two 
representing  total  charge  to  "Accounts  Receivable".  Under  the  first  method, 
the  total  sales  would  represent  the  net  cement  sales  only,  plus  any  amount  cov- 
ering excess  cost  of  sacks.  As  all  Sales  in  the  past  have  carried  no  proportion 
of  sack  costs,  but  net  cement  sales,  it  will  be  seen  that  segregation  of  sales  under 
the  second  method  would  be  necessary  to  prevent  inflation  of  sales  by  the  inclu- 
sion of  the  total  sack  cost,  and  thus  have  the  effect  of  destroying  comparative 
figures  with  previous  years'  where  sack  cost  was  not  included  in  Cement  Sales 
Account.    An  illustration  of  the  operation  of  the  second  method  is  given  below : 

100,000  sacks  are  purchased  at  16c $16,000.00 

100,000  sacks  are  purchased  at  20c 20,000.00 

50,000  sacks  are  returned  by  customers  at  10c ....     5,000.00 
50,000  sacks  are  shipped  out  at  an  average  price 

of  .1640  12,300.00 

The  entries  to  record  the  above  transactions  would  be  as  follows: 

Sacks  PurcJiased: 

100,000  at  16c $16,000.00 

100,000  at  20c 20,000.00 

50,000  at  10c 5,000.00  (returned  by  customer) 

Average  cost  .1640. 

Dr.  Sack  Inventory $41,000.00 

To  Accounts  Payable 36,000.00 

To  Accounts  Receivable 5,000.00 

250,000  sacks  purchased  at  varying  prices. 

89 


Sacks  Shipped: 


75,000  at  .1640  (average  cost) 

Dr.  Accounts  Receivable $12,300.00 

To  Sack  Inventory 12,300.00 

Cost  of  75,000  sacks  used  in  shipments  for  month. 


The  Ledger  Accounts  after  the  above  transactions  have  been  completed 
would  appear  as  below: 

Sack  Inventoet. 


To  Accounts  Pay- 
able     100,000    $16,000.00 

To  Accounts  Pay- 
able   100,000      20,000.00 

To  Accounts  Re- 
ceivable   50,000        5,000.00 


By  Sack  Cost,  75,000  at 

.1640  $12,300.00 

(This  entry  through 
General  Journal  at 
end  of  month.) 


Accounts  Payable. 


By  Sack  Inventory 16,000.00 

By  Sack  Inventory 20,000.00 


Sack  Cost. 


To  Sack  Inventory,  75,000. $12,300.00 
(This  entrj'  through  General 
Journal  at  end  of  month.) 


Accounts  Receivable. 


To  Sack  Sales $12,300.00 


By  Sack  Inventory 5,000.00 

(Sacks  returned.) 


Sack  Sales. 


By  Accounts  Re- 
ceivable, 75,000 12,300.00 


90 


Trial  Balance. 

Sack  Inventory— 75,000  $28,700.00 

Accounts  Payable  $36,000.00 

Sack  Cost  (to  be  entered  in  first  section  of  Profit  &  Loss 

Accounts)    12,300.00 

Accounts  Receivable 7,300.00 

Sack  Sales  (to  be  included  in  total  sales  in  Trading  Ac- 
count)      12,300.00 

$48,300.00    $48,300.00 

There  is  still  a  third  method  that  was  suggested  at  the  Atlantic  City  meet- 
ing, i.  e.,  to  carry  the  excess  cost  above  10c  to  a  deferred  account  as  in  the  first 
method,  but  to  absorb  it  by  equal  monthly  charges  during  the  year,  charging 
Sack  Cost  and  crediting  the  Deferred  Account.  The  latter  method,  however,  is 
not  recommended.  As  the  first  two  methods  are  very  similar  as  to  final  results, 
either  may  be  adopted,  and  if  used,  certainly  the  Sack  Cost  will  be  cared  for  with 
but  little  trouble,  much  useless  bookkeeping  eliminated  and  true  costs  ascer- 
tained. 


Ql 


XV 

Procedure  in  Opening  Accounts  and  Installing  System 

The  following  procedure  is  recommended  in  opening  accounts  and  in  instal- 
ling system.    It  is  assumed  that  the  necessary  books,  i.  e., 

Cash  Book, 

General  Ledger, 

Cost  Ledger, 

Purchase  Journal, 

General  Journal, 

Sales  and  Sack  Return  Records, 

have  been  prepared  and  that  all  forms  have  been  received  from  the  Association. 
The  first  step  would  be  the  opening  of  the  General  Ledger : 

Assets  and  Liabilities  : 

From  the  last  Balance  Sheet  bring  forward  all  Asset  and  Liability  Accounts, 
opening  such  accounts  in  the  order  shown  by  the  Balance  Sheet,  except  the  fol- 
lowing Inventory  Accounts : 


Raw  Material  No 
Raw  Material  No.  2 


;}« 


quarried,  mined  or  produced 
at  Mill,  these  accounts  would 
be  represented  by  these  head- 
ings in  the  Operating  Sec- 
tion. 


If  materials  are  purchased,  enter  with  other  Inventory  Accounts  of  materials 
and  supplies  purchased. 

Clinker  This  is  the  balance  of  Clinker 

Burning  Account  and  ap- 
pears in  Operating  or  Manu- 
facturing Section. 

Operating  and  Manufacturing  Accounts: 

Next  head  of  Manufacturing  Controlling  Accounts  as  below : 

Raw  Material  No.  1. 
Raw  Material  No.  2. 
Raw  Grinding. 
Clinker  Burning. 
Finished  Grinding. 
Mill  Overhead. 
Reserves. 
Finished  Cement. 

98 


The  Auxiliary  Accounts  will  come  next,  so  therefore  head  up  the  following 
accounts : 

Coal  Preparing. 

Power,  Light  and  Water. 

Machine,  Blacksmith  and  Carpenter  Shop. 

(Three  separate  accounts  may  be  opened  if  desired.) 

Floating  Gang. 

Then  head  up  the  accounts  relating  to  Trading  and  Profit  and  Loss  Sections, 
as  below: 

Trading  Account.     (A  Summary  Account— See  de- 
scription.) 
Cement  Inventory. 
Cement  Sales. 
Sack  Sales.     (See  Chapter,  "Package  Accounting.") 

Allowances. 

Sack  Cost.     (See  Chapter,  "Package  Accounting.") 

Packing  and  Loading. 

Sack  Handling. 

Selling  Expense  Accounts. 

(See  Chart  of  Accounts)  Nos.  451-459  are  suggested. 
General  &  Administrative  Expense  Accounts. 

(See  Chart  of  Accounts)  Nos.  461-469  are  suggested. 
General  Expenses. 

(See  Chart  of  Accounts)  Nos.  471-479  are  suggested. 
Extraneous  Income. 

(See  Chart  of  Accounts)  Nos.  481-489  are  suggested. 

It  might  be  weU  to  divide  the  General  Ledger  by  index  tabs,  such  division 

being  as  follows: 

Assets. 
Liabilities. 
Manufacturing. 
Trading. 
Profit  and  Loss. 

The  next  step  would  be  to  decide  just  what  records  are  to  be  kept  at  the 
MiU.  Naturally  the  Coal  record,  Gypsum  record  and  Stores  Ledger  should  be 
handled  by  the  Mill  Office.  If  so,  the  mill  clerk  should  read  carefully  the  chapter 
relating  to  the  books  and  forms  kept  at  the  Mill  and  other  instructions.  The 
Cost  Ledger  should  next  be  opened  (if  detailed  costs  and  Cost  Sheets  are  de- 
sired, otherwise,  the  monthly  Summary  Accounts  may  be  utilized  instead  of 
Cost  Sheets.)  The  first  section  (with  two  divisions)  represents  Quarrying  or 
Mining  Costs;  therefore  open  all  accounts  relating  to: 

Raw  Material  No.  1 : 

From  the  Chart  of  Accounts  head  accounts  Nos.  511-519  and,  if  desired 
optional  accounts  Nos.  5111  to  5119. 

08 


Raw  Material  No.  2 : 

The  same  remarks  apply  to  this  account,  using  Chart  of  Accounts  Nos. 
521-529,  and  Optional  Accounts  Nos.  5211-5219. 

Mill  Accounts: 

The  same  procedure  in  heading  up  these  accounts  is  observed.  Chart  of 
Accounts  Nos.  611-659,  and  Optional  Accounts  6111-6519  are  recommended. 

Auxiliary  Accounts: 

Head  up  these  accounts  as  shown  by  Chart  of  Accounts,  using  Nos.  711-779 
and  Optional  Accounts  Nos.  7111-7219.  No  Optional  Accounts  for  the  last  five 
Auxiliary  Accounts  are  suggested  or  recommended. 

Memorandum  Account  Section: 

Open  up  detailed  accounts  covering  Packing  and  Loading,  using  Accounts 
Nos.  431-439  and  Optional  Accounts  Nos.  4311-4319. 

Open  up  detailed  accounts  covering  Sack  Handling,  using  Accounts  Nos. 
441-449  and  Optional  Accounts  Nos.  4411-4419. 

Inventory  Section: 

Head  up  Inventory  Accounts  for: 

Raw  Material  No.  1. 
Raw  Material  No.  2. 
Clinker. 
Cement. 

It  is  advisable  to  sub-divide  this  ledger  by  index  tabs,  as  below.  Use  the 
following  general  divisions: 

Raw  Material  No.  1. 

Raw  Material  No.  2. 

Mill. 

Auxiliary. 

Memorandum. 

Inventory. 

If  desired,  further  sub-divisions  by  tabs  are  recommended: 

Mill: 

Raw  Grinding. 
Clinker. 
Finishing. 
Overhead. 
Reserves. 
Auxiliary : 

Coal  Preparing. 
Power,  Light,  Water. 
Machine  Shop. 
Blacksmith  Shop. 
Carpenter  Shop. 
Floating  Gang. 
R.  R.  and  Switching. 

84 


Memorandum : 

Packing  and  Loading. 
Sack  Handling. 

Inventory : 

Raw  Material  No.  1. 
Raw  Material  No.  2. 
Clinker. 
Cement. 

A  new  transparent  tab  known  as  "Mak-ur-own"  is  recommended  and  will 
be  furnished  if  desired. 

All  is  now  ready  for  the  utilization  of  the  different  books,  and  forms ;  the 
descriptive  text  in  previous  Chapters  gives  full  information  relative  to  their 
use  and  utilization.  Too  much  care  and  time  cannot  be  given  to  the  first  month's 
operation  of  the  system  for  if  properly  carried  through,  no  subsequent  trouble 
should  be  experienced.  It  must  be  realized,  however,  that  every  point  or  subject 
cannot  be  fully  covered  in  any  book,  therefore  the  Accountant  or  Bookkeeper 
is  urged  to  take  up  with  the  Cost  Accountant  of  the  Association  any  matters 
or  details  not  thoroughly  understood.  This  will  save  time  and  prevent  the  com- 
pounding of  errors  of  principle  in  subsequent  months. 

For  purpose  of  comparison,  it  is  recommended  that  monthly  Cost  Sheets  be 
prepared  for  each  month  of  1917.  This  will  also  expedite  the  getting  of  costs 
"to  date"  when  preparing  Cost  Sheets  for  1918. 


95 


XVI 

Depreciation,  Depletion  and  Appraisals 


.>» 


f 


The  following  artides  are  reprinted  from  "Industrial  Management''  ex- 
cept article  on  Depreciation,  which  is  freely  quoted  from  "Income  Tax  Proce- 
dure" and  "Accounting,  Theory  and  Practice"  by  Mr.  R.  H.  Montgomery,  C.  P. 
A.,  N.  Y.,  and  published  by  the  Ronalds  Press,  New  York. 

The  Committee  feels  that  the  subjects  are  of  sufficient  importance  to  war- 
rant the  space  allotted  in  this  Chapter.  In  addition  to  the  special  articles  on 
Depreciation,  and  Depletion,  extracts  from  writings  of  various  authorities,  may 
prove  of  interest. 

DEPRECIATION  AND  RESERVES. 
George  Wilkinson,  C.  P.  A. 

A  lecture  delivered  to  the  Evening  School  of  Accounts  and  Finances 

University  of  Pennsylvania. 

Depreciation  may  be  defined  as  the  loss  in  value  of  some  destructible 
property  over  and  above  current  repairs  and  renewals.  In  all  tangible 
destructive  property  in  use  there  is  a  constant  depreciation,  whether  it  is 
taken  care  of  in  the  proper  manner  or  not    •     •     *. 

If  any  part  of  a  machine  breaks  or  becomes  worn  out,  there  is  a  loss. 
The  lost  machinery  may  be  readily  replaced  by  a  new  part  and  the  machine 
is  said  to  be  "as  good  as  new."  This  results  in  an  expense  to  the  owner 
of  such  a  machine  which  is  commonly  called  "repairs,"  or  more  techni- 
cally "maintenance."  The  loss  that  arises  through  depreciation  is  of  a 
different  nature. 

It  is  not  accidental,  but  slow,  gradual,  inevitable.  If  the  owner  of  a 
machine  repairs  it  ever  so  well,  there  inevitably  comes  a  day  when  it  can 
no  longer  be  kept  in  a  serviceable  condition.  Its  usefulness  is  gone.  It  is 
thrown  on  the  scrap  heap  or  thrown  to  the  junk  man.  This  results  in  a 
loss  of  capital  or  loss  of  revenue,  according  to  the  manner  in  which  it  is 
dealt  with.  If  the  necessity  to  make  proper  provision  for  depreciation  out 
of  earnings  is  neglected  (as  it  often  is)  it  will  ultimately  assert  itself  to  the 
most  serious  embarrassment  of  the  owner  as  a  loss  of  capital. 

PRINCIPLES  OF  DEPRECIATION. 

E.  A.  Sailers. 

Professor  of  Economics  and  Accounting  Lehigh,  Yale. 

The  Treasury  Department  has  ruled  that  the  deductions  for  deprecia- 
tion should  be  based  on  four  considerations: 

1.  The  life  of  the  property. 

2.  Its  cost. 

3.  Its  value. 

4.  Its  use. 

96 


With  reference  to  depletion,  the  Income  Tax  Law  of  1913  specifically 
states  that  Material  deposits  are  to  be  charged  not  in  excess  of  5  per  cent, 
of  the  gross  value,  at  the  mine,  of  the  output  for  the  year  for  which  the 
computation  is  made. 

The  "straight  line"  method  is  the  simplest  of  the  several  plans  that 
have  been  suggested  to  determine  theoretical  depreciation  and  to  make 
proper  allowance  for  it  in  the  records.  It  is  based  on  the  assumption  that 
if  the  investment  in  dollars  and  cents  is  divided  by  the  number  of  years,  or 
periods,  of  the  lifetime  of  the  property  the  resultant  quotient  expresses  the 
amount  in  dollars  and  cents  which  should  be  allowed  each  month  or  year 
to  cover  accrued  depreciation  and  prevent  lessening  of  invested  capital. 
Whether  the  best  method  or  not,  it  is  at  once  the  least  complicated  and  most 
easily  understood.  No  interest  computations  of  any  kind  are  involved  either 
on  the  investment  itself,  (as  in  annuity  and  equal  payment  methods)  or  on 
the  annual  allowance  as  in  the  "sinking  fund"  method.  The  simplicity  of 
the  "straight  line"  method  of  determining  depreciation  stamps  it  with  an 
appearance  of  practicability.  It  is  free  from  interest  complications  and  its 
employment  does  not  require  a  knowledge  of  logarithmic  or  any  other 
method  of  finding  roots  and  powers  of  numbers. 

Speaking  generally  there  appears  to  be  no  reason  why  the  "straight 
line"  method  does  not  approximate  annual  depreciation  as  nearly  as  any 
of  the  complicated  curves  at  times  advocated.  Its  use  is  one  of  expediency 
rather  than  accuracy ;  of  expediency  based  on  the  principle  that  the  interest 
of  the  stockholders,  bondholders  and  the  public  must  be  diligently  protected. 
To  do  this  the  procedure  adopted  should  guarantee  the  return  to  the  busi- 
ness through  the  rates  charged  of  an  amount  approximately  equal  to  the 
plant  value  incident  to  the  production  of  the  commodity  •  •  *.  It  is 
axiomatic  that  depreciation  is  one  of  the  costs  of  production  and  hence  a 
corresponding  amount  should  be  charged  to  costs  and  thus  be  retained  to 
offset  the  exhaustion  of  capital. 

J.  Lee  Nicholson, 

C.  P.  A.  New  York,  of  the  Federal  Trade  Commission. 

Depreciation,  as  a  term,  may  be  defined  as  loss  in  value.  The  loss  may 
be  due  to  age,  use  or  a*  combination  of  these  two  with  several  contributary 
causes.  The  manufacturer  who  calculates  his  profit  without  taking  into 
consideration  this  important  feature  is  obtaining  figures  that  misrepresent 
the  conditions.  The  plant  has  lost  in  value  during  the  production  and  even 
lo*  of  value  is  just  as  much  a  part  of  the  cost  of  production  as  wages  or 
any  other  similar  element. 

The  first  thing  to  be  done  in  calculating  depreciation  is  to  estimate  the 
life  of  the  equipment  or  machinery,  based  on  operating  full  time.  The  cost 
of  the  equipment  should  then  be  divided  by  the  number  of  hours  in  this 
period,  in  order  to  obtain  the  rate  of  depreciation  per  actual  operating  hours. 
This  is  the  most  accurate  way  to  figure  depreciation    •    •    •. 

MANUFACTURING  COST  AND  ACCOUNTS 
A.  Hamilton  Church, 

Consulting  and  Efficiency  Engineer  of  the  firm  of  Haskins  and  Sells, 
Certified  Public  Accountants,  N.  Y, 

•  •  •  It  follows  from  this  that  depreciation  is  not  a  fancy  or  arti- 
ficial idea,  but  that  it  is  the  nearest  approximation  we  can  make  to  a  very 

97 


ordinary  fact,  the  fact  of  consumption  of  an  article  by  using  it.  And, 
therefore,  if  we  are  to  obtain  the  true  cost  of  the  manufacture  of  our  prod- 
uct, the  value  of  our  equipment  that  we  use  up  daily,  monthly  and  yearly 
must  be  included  in  that  cost  just  as  the  cost  of  using  up  a  file  or  a  pound 
of  grease  must  find  its  place  in  costs  and  for  exactly  the  same  reason. 

ACCOUNTING,  THEORY  AND  PRACTICE 
R.  H.  Montgomery,  C.  P.  A.,  New  York. 
Depreciation  Methods: 

1.  The  fixed  percentage  basis  is  the  most  popular  and  is  the  one  in 
general  use.    It  is  applied : 

(a)  On  a  flat  basis,  e.  g.,  if  the  life  of  a  machine  is  ten  years,  1/10  or 
10  per  cent  is  charged  off  annually. 

(b)  On  a  reducing  scale  basis,  i.  e.,  a  rate  is  ascertained  which,  when 
applied  to  the  original  cost  and  on  the  diminished  value  as  periodically 
determined,  will  reduce  the  book  to  scrap  value  at  the  end  of  its  estimated 
life. 

Method  (a)  is  more  generally  followed  than  (b),  although  there  is  in 
use  a  method  which  is  a  cross  between  the  two  and  which  is  not  scientific. 
It  consists  in  charging  the  rate  as  determined  under  (a)  but  applying  it 
to  the  reducing  value  intsead  of  to  the  original  cost.  For  instance :  If  the 
life  of  a  boiler  is  estimated  at  ten  years,  10  per  cent  per  annum  is  set  aside 
as  a  reserve,  but  on  the  diminishing  value.  Referring  to  table  of  different 
methods,  it  will  be  seen  the  book  value  under  this  method  would  be  348.68 
at  the  end  of  ten  years,  instead  of  100,  as  under  the  other  methods. 

2.  Sinking  fund  method.    This  method  is  seldom  followed. 

The  following  table  shows  the  result  of  different  methods  of  calcu- 
lating over  a  period  of  ten  years,  upon  an  article  costing  $1000  with  a 
break-up  value  of  $100  at  the  close  of  the  decade : 

Table  op  Methods. 


FixMl  Pwc«ntage  Method 

Flxod  Percontago  Metiiod 

sinking  Fund  Method 
at  5%  Conwound 

Y<w 

10%  on  Original  Cost 
or  Value 

20.57^c  on  Diminishing 

Value 

Interest     , 

1 

S90 

$205.70 

$71.55 

2 

90 

163.38 

71.55 

3 

90 

129.78 

71.55 

4 

90 

103.08 

71.55 

5 

90 

81.88 

71.55 

6 

90 

65.03 

71.55 

7 

90 

51.66 

71.55 

8 

90 

41.03 

71.55 

9 

90 

32.59 

71.55 

10 

90 

25.87 

71.55 

Compound   Interest 

715.50 

at  5%. 

184.50 

Total 

$900 

$900.00 

$900.00 

We  often  see  a  statement  in  published  reports  that  a  corporation  has 
realized  net  profits  amounting  to  a  certain  sum,  and  that  out  of  these 
profits  an  allowance  for  depreciation  has  been  made.  It  would  be  just  as 
logical  to  state  that  a  candy  manufacture  had  earned  a  net  profit  of  $100,- 


98 


000  and  that  out  of  said  $100,000  there  had  been  set  aside  $20,000  for  the 
sugar  consumed  in  the  manufacture  of  the  product ! ! 

The  use  of  that  which  is  consumed  is  a  loss  or  expense.  You  cannot 
say  that  one  is  an  operating  expense  and  that  the  other  is  an  item  which 
need  not  be  ascertained  nor  taken  into  account  until  the  net  profit  is  shown. 
Net  profit  means  only  one  thing  in  the  vocabulary  of  the  professional  ac- 
countant or  auditor,  and  that  is  the  excess  of  income  over  operating  costs, 
expenses  and  loss.  It  cannot  be  determined  by  taking  into  account  all  of 
the  income  but  only  part  of  the  charges  against  income. 

If  the  provision  for  depreciation  is  not  such  an  item  as  can  be  included 
among  cost  of  operation,  then  it  is  a  misnomer.  This  view  of  deprecation 
is  well  expressed  by  Professor  Henry  C.  Adams,  writing  with  respect  to 
railroad  accounts,  but  the  principle  enunciated  applies  with  equal  force 
to  industrial  accounts.  When  carried  to  its  final  analysis  the  question  of 
formal  depreciation  charges  to  operating  expenses  is  simply  a  question  of 
what  constitutes  cost  of  operation,  and  the  time  when  such  cost  shall  be 
acknowledged  in  accounts.  The  position  which  the  Interstate  Commerce 
Commission  system  of  accounts  assumes  on  this  point  is,  that  the  depletion 
of  an  asset  which  represents  an  investment  through  the  use  of  that  asset 
in  operations  creates  an  item  cost  of  operation  which  should  he  reflected  in 
the  accounts  when  the  fact  of  such  depUtion  takes  place,  and  that  a  state- 
ment of  net  revenue  made  without  including  this  element  of  cost  m  operat- 
ing expenses  is  an  erroneous  statement." 

DEPRECIATION 

An  extract  from  "Fundamentals  of  a  Cost  System  for  Manufacturers" 
issued  hy  the  Federal  Trade  Commission,  Edward  N.  Hurley, 

Chairman  (1916). 

THE  necessity   OF  INCLUDING  IN  COST 

"Depreciation  is  one  of  the  most  important  of  all  the  overhead  ex- 
penses, because  it  is  generally  the  largest.  There  has  probably  been  more 
written  on  this  subject  than  any  other  item  of  overhead,  but  there  are  so 
many  different  ways  of  handling  depreciation,  some  of  which  are  best 
adapted  for  one  line  and  some  for  another,  that  there  is  really  no  recog- 
nized standard  method.  It  is  universally  admitted,  however,  that  deprecia- 
tion does  exist,  that  it  is  an  element  of  cost  just  as  much  as  labor  or  ma- 
terial, and  that  any  system  which  does  not  provide  for  including  it  is  faulty 
and  one  that  will  not  give  true  costs. 

METHODS  OP  DETERMINING  DEPRECIATION 

One  method  of  handling  depreciation,  which  is  unqualifiedly  con- 
demned although  extensively  used,  is  to  wait  until  the  end  of  the  year  and 
then  if  the  profit  and  loss  statement  shows  that  a  good  profit  has  been 
earned  to  charge  a  part  of  this  profit  to  depreciation.  If,  on  the  other  hand, 
the  profit  and  loss  statement  shows  little  or  no  profit,  nothing  is  charged  to 
depreciation.  It  is  difiicult  to  understand  how  any  practical  man  can  take 
the  view  that  his  plant  and  equipment  have  not  worn  out  because  he  has 
not  made  a  profit,  and  at  the  same  time  have  worn  out  when  he  has  made 
a  profit. 

The  first  step  necessary  to  provide  for  proper  depreciation  is  to  depart- 
mentalize the  plant  values.  The  next  step  is  to  take  each  kind  of  equip- 
ment or  machine  and  figure  its  proper  depreciation. 

99 


I 


There  are  several  methods  of  determining  the  amount  of  depreciation. 
One  is  to  estimate  the  scrap  value  and  deduct  this  figure  from  the  original 
cost.  The  difference  is  then  divided  by  the  estimated  life  of  the  machine 
in  years,  and  the  result  is  the  annual  depreciation  on  that  machine.  A 
modification  of  this  method  which  is  not  quite  as  simple,  but  really  affords 
no  difficulty,  is  after  ascertaining  the  amount  to  be  charged  off  during  the 
life  of  the  machine  to  determine  a  percentage  which,  when  applied  to  the 
net  book  value  of  the  machine,  will  leave  only  the  scrap  value  of  the  ma- 
chine on  the  books  at  the  expiration  of  its  estimated  life. 

To  illustrate :  If  the  initial  cost  of  a  machine  and  equipment  is  $1000 
and  the  estimated  scrap  value  is  $200,  with  an  estimated  life  of  ten  years, 
then  $800  is  the  amount  that  must  be  charged  into  cost  during  that  period, 
or  $80  per  year.  To  attain  this  result,  by  using  the  net  value  of  the  ma- 
chine as  a  basis,  a  rate  of  15  per  cent  would  be  necessary,  which  would 
make  the  depreciation  15  per  cent  on  $1000,  or  $150,  the  first  year ;  15  per 
per  cent  on  $850,  or  $127.50,  the  second  year,  etc.  The  advantage  of  this 
method  in  the  interest  of  normal  costs  is  that  the  decrease  in  depreciation 
charges  is  ordinarily  offset  by  an  increase  in  repairs." 


COMMENTS  ON  THE  FOREGOING. 

By  0.  K.  GoREE, 

Cost  Accountant  Portland  Cement  Association. 

From  the  foregoing  it  would  seem  that  the  "straight  line"  or  "fixed  per- 
centage" method  is  the  one  best  adapted  to  the  cement  industry.  So  much  for 
the  method  of  handling  depreciation  by  the  accountant,  that  can  be  easily  taken 
care  of;  it  is  the  technical  end  that  calls  for  standardized  classification  and 
treatment.    This  refers  to : 

(1)  The  cost  or  value  of  Buildings,  Machinery  and  Equipment. 

(2)  The  Estimated  Life. 

As  previously  stated,  but  few  plants  have  segregated  their  plant  values, 
often  one  account  headed  "Plant  Account"  being  deemed  sufficient.  Often  to 
this  account  has  been  credited  the  periodical  Reserve  for  Depreciation,  result- 
ing in  a  constant  writing  down  of  asset  values  until  it  is  a  rather  difficult  mat- 
ter to  arrive  at  original  cost.  To  properly  apply  the  Mortality  Table,  approved 
by  the  Association,  it  is  necessary  to  segregate  plant  values ;  therefore,  to  restore 
and  separate  such  values,  an  appraisal  (either  by  an  outside  Appraisal  Com- 
pany, or  by  members  of  the  Mill  Staff)  is  necessary.  To  expedite  such  an  ap- 
praisal a  form  has  been  prepared  (see  Form  No.  27)  which,  it  is  believed,  will 
meet  all  requirements.  This  is  the  form  used  by  all  appraisal  companies,  and 
referred  to  in  an  article  on  "Appraisals"  following  this,  and  calls  for  no  special 
comment. 

If,  after  the  appraisal  has  been  made  and  the  various  sheets  tabulated,  it  is 
found  that  the  total  of  the  "Present  Value"  column  is  less  in  the  aggregate  than 
the  ledger  values,  the  difference  (representing  in  a  large  mea  ure  the  accrued 
depreciation  not  cared  for  in  the  past)  should  be  credited  to  "Reserve  for 
Depreciation,  Mill  Machinery,"  etc.,  and  charged  to  Surplus,  or  charged  to  a 

100 


Deferred  Account  to  be  absorbed  yearly  by  a  deduction  from  net  profits  at  the 
end  of  the  year.  If,  however,  the  total  of  "Present  Value"  column  is  in  excess 
of  the  book  value — less  reserves — ^then  this  difference  may  be  debited  to  plant 
values  and  passed  to  Surplus  Aceoiint,  it  being  evident  that  an  excess  depreciation 
figure  has  been  charged  off  in  the  past.  If  it  is  found  that  such  increase  is  brought 
about  by  an  appreciation  in  values  it  might  be  unwise  to  pass  this  difference 
to  Surplus,  as  dividends  paid  out  of  appreciated  values  is  subject  to  criticism 
and  might  lead  to  serious  economic  results,  in  such  cases  same  should  preferably 
be  credited  to  an  Account  headed  "Capital  Surplus." 

After  all  Values  have  been  segregated  and  reconciled  with  ledger  balances, 
next  prepare  Schedule  of  Depreciaton  (see  Form  No.  28),  placing  such  ascer- 
tained present  value  in  the  first  column.  We  now  come  to  the  Estimated  Life : 
The  Mortality  Table  on  page  following,  was  prepared  by  the  Committee  on  Uni- 
form Cost  Accounting  from  replies  received  from  53  Member  Companies,  repre- 
senting 63  per  cent  of  the  Association  membership,  and  72.29  per  cent  of  produc- 
tion by  member  companies  during  1916.  This  table  was  unanimously  approved 
by  the  Association  at  the  Fall  meeting  held  at  Chicago  September  10-13,  and 
should  be  used  in  supplying  the  expected  life  figure  in  the  second  column  of  the 
Depreciation  Schedule.  Representing  as  it  does  the  opinion  of  95  per  cent  of  the 
cement  manufacturers  in  the  United  States,  it  certainly  deserves  unqualified  con- 
sideration. Therefore,  place  in  the  "Life"  column  the  figures  taken  from  the 
Mortality  Table.  If  we  now  divide  each  item  by  its  expected  life,  we  have  the 
Annual  Depreciation  charge,  which  enter  in  third  column ;  the  total  of  the  third 
column  now  represents  the  total  depreciation  charge  for  the  year.  Next  divide 
this  amount  by  12  and  extend  the  monthly  charge  in  last  column.  If  desired, 
this  monthly  charge  may  be  subdivided  as  between  Raw  Material  and  Cement. 
The  depreciation  on  quarry  equipment  being  charged  to  Raw  Material,  and  the 
balance,  or  figure  representing  Mill  depreciation,  to  Mill  Cost  after  total  Direct 
Cost  of  Production  is  determined,  such  charge  being  included  in  group  headed 
"Reserves." 

In  making  out  Income  Tax  Returns,  therefore,  use  the  figure  shown  by 
"Annual  Depreciation"  column.  Then  should  the  Government  question  such 
a  deduction,  there  is  some  tangible  basis  to  support  the  amount  so  deducted. 


101 


MORTALITY  TABLE 

Being  Average  Estimated  Life  op  Various  Properties 

IN  THE  Cement  Industry 

Average 

Machinebt:  ufe, 

Quarry:  yeara 

Locomotives    13 

Tracks  and  Cars 9 

Steam    Shovels    li 

Dredges    11 

Drills— Well    9 

Drills — Tripod    7 

Live  Stock  g 

Carts  and  Wagons 7 

Cable-way   9 

■    Raw  Department: 

Crushing  Machinery 14 

Dryers — Upright   11 

Dryers — Rotary   11 

Slurry  Tanks  16 

Grinding  Machinery    13 

Clinker  Burning  Department: 

Kilns    IS 

Coolers — Upright   12 

Coolers — Rotary    13 

« 

Clinker  Orinding  Machinery  12 

Coal  Mill: 

Dryers    11 

Grinding  Machinery   14 

Power  House: 

Boilers    15 

Engines    17 

Generators    '. IG 

Motors    14 

Stock  House  Machinery 10 

Machinery  and  B.  (8.  Shop  Machinery   15 

Btjildings: 

Mill: 

Concrete    50 

Steel  and  Corr.  Iron   20 

Steel  and  Stucco  21 

Steel  and  Brick 30 

Timber   20 

General  (Mill  Off.  Laboratory,  Store  House,  etc.): 

Concrete  50 

Steel  and  Corr.   Iron    20 

Steel  and  Stucco   22 

Steel  and  Brick 30 

Frame    18 

Frame  and  Stucco  22 

Dwellings : 

Concrete 50 

Brick   30 

Frame   20 

Frame  and  Stucco  23 

108 


THE  APPRAISAL  OF  MANUFACTURING  PLANTS 
By  Charles  "W.  McKay. 

A  Common^Sense  Method  of  Determining  Factory  Values  at  a  Miniinum 

Cost  of  Appraisal. 

Two  of  the  methods  developed  in  the  appraisement  of  public  utilities 
have  suggested  to  the  author  a  standard  method  of  industrial  plant  evalua- 
tion which  should  stand  the  acid  test  of  appraisal  engineers.  The  method 
is  herein  presented  in  outline  and  should  offer  interesting  possibilities. — 
The  Editors. 


Possibly  no  one  subject  has  so  universally  shared  the  attention  of  engi- 
neers, accountants  and  the  public  at  large  as  that  of  public  utility  ap- 
praisals during  the  past  five  years.  The  activities  of  the  Interstate  Com- 
merce Commission,  the  various  state  commissions,  and  the  local  municipal 
regulatory  bodies  have  revolutionized  methods  of  determining  the  value  of 
public  utility  properties  and  developed  this  branch  of  appraisement  work 
into  a  more  or  less  exact  science. 

It  is  but  natural  that  progress  along  this  line  in  the  public  utility  field 
should  be  reflected,  at  least  to  some  extent,  in  the  realm  of  what  may  be 
termed  the  "private  utilities" — the  manufacturing  and  industrial  enter- 
prises which  do  not  fall  directly  under  the  federal,  state  or  municipal 
jurisdiction.  That  this  is  true  is  evidenced  by  the  existence  of  a  large  num- 
ber of  so-called  manufacturers'  appraisal  companies  and  by  the  activities 
of  the  various  fire  insurance  companies  in  establishing  appraisal  depart- 
ments for  the  determination  of  more  reliable  plant  values  than  are  usually 
obtainable  from  the  books  of  manufacturing  concerns.  The  fact  that  the 
manufacturing  companies  are  not  subservient  to  the  dictates  of  regulatory 
bodies — except  in  a  very  broad  sense — has  been  responsible  for  a  lack  of 
uniformity  in  the  development  of  the  manufacturing  plant  branch  of  ap- 
praisal work. 

Broadly  speaking,  the  prevalent  factory  appraisal  methods  may  be 
divided  into  two  general  classes — one  adopted  by  the  Associated  Factory 
Mutual  Fire  Insurance  Companies  and  named  by  their  appraiser,  Mr.  John 
G.  Morse,  "Valuation  by  Approximation";  the  other  the  method  usually 
followed  by  the  various  appraisal  companies. 

valuation  by  approximation 

Mr.  Morse's  plan,  as  outlined  in  his  recent  paper  before  the  Utilities 
Bureau  in  Philadelphia,  is  briefly  as  follows :  The  manufacturing  plant  is 
first  divided  into  two  general  classifications — "Buildings"  and  "Machin- 
ery." The  buildings  are  first  considered  without  their  equipment.  All 
elevators,  piping,  wiring,  and  any  of  the  other  equipment  that  can  be  re- 
moved without  materially  altering  the  building,  are  considered  as  machin- 
ery. Machinery  is  subdivided  into  the  classifications,  machinery  proper, 
shafting,  belting,  piping,  etc.  Each  subdivision  is  inventoried  and  ap- 
praised separately. 

With  the  possible  exception  of  equipment  falling  under  the  caption 
** machinery  proper,"  very  broad  and  comprehensive  methods  of  appraise- 
ment are  employed.  Valuations  of  buildings  are  based  upon  the  number 
of  square  feet  of  floor  area ;  shafting  and  pulleys  are  appraised  by  estimat- 
ing the  number  of  lineal  feet  of  shaft ;  the  value  of  steam  and  gas  piping, 
sprinkler  systems,  etc.,  is  estimated  at  so  much  per  square  foot  of  floor  area. 
Similar  short-cut  methods  are  employed  according  to  Mr.  Morse,  in  ascer- 

103 


taining  the  value  of  small  tools,  patterns,  etc.  In  some  eases  the  value  of 
furniture  and  fixtures  is  estimated  approximately  by  the  appraiser  with- 
out listing  the  equipment  in  detail. 

METHOD  EMPLOYED  BY  THE  APPRAISEMENT  COMPANIES 

There  are  a  large  number  of  firms  in  the  field  at  present  who  devote 
themselves  exclusively  to  the  appraisement  of  manufacturing  plants.  Ap- 
praisals made  by  these  companies  are,  as  a  rule,  overburdened  with  detail. 
Their  reports  often  consist  of  several  cumbersome  volumes  in  which  every 
item  of  plant  down  to  the  smallest  tool  is  laboriously  inventoried.  How- 
ever, any  benefits  which  may  be  derived  from  careful  and  accurate  inven- 
tories are  frequently  more  than  offset  by  inaccuracies  in  determining  unit 
costs,  and  by  the  employment  of  methods  of  determining  depreciation,  too 
largely  dependent  upon  the  individual  judgment  of  the  field  inspector. 

Then,  again,  there  is  a  serious  question  as  to  whether  the  cost  of  de- 
tailed inventories  of  small  and  comparatively  inexpensive  items  of  plant 
is  justified.  The  manufacturer's  own  inventory  is  usually  sufficiently  accu- 
rate to  warrant  its  use  in  ascertaining  the  value  of  the  less  important  ele- 
ments of  plants,  provided  it  has  been  made  with  reasonable  care. 

In  summing  up  these  two  methods  of  appraisement,  several  thoughts 
suggest  themselves  which  may  bear  further  analysis.  An  appraisal  made 
under  the  plan  ' '  Valuation  by  Approximation ' '  may  perhaps  serve  admira- 
bly for  insurance  purposes,  but  the  fact  that  it  is  largely  dependent  upon 
rough  estimates  of  value  renders  it  inadequate  for  capitalization  or  account- 
ing purposes. 

The  plan  followed  by  the  appraisal  companies,  on  the  other  hand,  in- 
volves a  considerable  expenditure  without  insuring  the  determination  of 
plant  values  based  upon  recognized  engineering  principles  based  upon 
practice. 

The  thought  has  been  suggested  that  the  precedent  established  in  the 
field  of  public  utility  appraisals,  especially  with  respect  to  the  application 
of  depreciation  in  determining  present  values,  may  advantageously  be 
reviewed  in  an  effort  to  determine  a  method  of  manufacturing  plant  ap- 
praisal which  will  be  inexpensive  and  at  the  same  time  sufficiently  accurate 
for  all  purposes. 

The  two  prevalent  methods  of  public  utility  appraisement — the  repro- 
duction cost  method  and  the  original  cost  method — are  readily  adaptable  to 
the  requirements  of  manufacturing  plant  appraisal  work. 

Having  once  established  the  cost  of  a  property — whether  on  the  repro- 
duction or  original  cost  basis — it  is  a  comparatively  simple  matter  to  deter- 
mine the  depreciated,  or  present,  value  by  the  methods  universally  accepted 
by  courts  and  commissions  in  public  utility  work.  Values  so  determined 
are  practically  unassailable,  because  of  the  precedent  already  established 
by  the  courts. 

REPRODUCTION  AND  ORIGINAL  COST  METHODS  OF  APPRAISAL 

A  brief  discussion  of  the  reproduction  cost  and  original  cost  theories 
may  facilitate  a  clearer  understanding  of  the  tentative  plan  of  appraisement 
outlined  hereinafter. 

The  original  cost  method,  as  the  name  suggests,  involves  the  determina- 
tion of  the  actual  original  cost  of  the  property.  There  are  several  reasons 
why  it  is  often  impracticable  to  determine  original  cost — both  in  the  public 
utility  and  manufacturing  fields.     Complete  records  of  cost  are  rarely 

104 


available.  Fires,  floods  and  other  unavoidable  accidents  are  frequently  re- 
sponsible for  the  destruction  of  early  records.  Then,  again,  especially  in 
the  case  of  the  older  organizations,  methods  of  accounting  are  often  con- 
fusing, rendering  the  segregation  of  many  of  the  more  involved  construc- 
tion and  operating  expenditures  exceedingly  difficult. 

There  is  still  another  objection  to  the  original  cost  method.  Material 
and  labor  prices  have  evidenced  a  general  upward  trend  for  the  past  ten 
years.  If  the  original  cost  method  is  employed  today  in  evaluating  a  plant 
constructed  eight  or  ten  years  ago  and  present  value  is  determined  by  de- 
ducting the  accrued  depreciation  on  an  age  basis,  there  is  a  strong  prob- 
ability that  many  of  the  high-priced,  long-lived  elements  of  plant  will  be 
considerably  under-valued — that  the  prevalent  market  prices  for  second- 
hand or  used  material  will  be  higher  than  the  value  determined  on  the  orig- 
inal cost  basis.  In  other  words,  plants  containing  long-lived  equipment 
should  be  allowed  the  advantage  of  any  appreciation  in  value  due  to  the 
rise  in  worth  of  the  base  metals  of  which  they  are  constructed.  Especially 
is  this  true  in  the  competitive  manufacturing  field. 

The  reproduction  cost  method  involves  the  determination  of  the  cost 
of  replacing  the  plant  substantially  as  it  exists  at  the  date  of  the  appraisal — 
using  cost  prevalent  at  that  time  unless  the  material  or  labor  markets  hap- 
pen to  be  abnormal  due  to  some  temporary  condition,  such  for  instance  as 
the  present  European  War.  In  any  event,  it  is  usually  safer  to  review 
prices  for  the  two  or  three  years  preceding  the  appraisal  and  use  costs  that 
represent  average  conditions. 

VALUATION  OP  MANUFACTURING  PLANTS  ON  THE  REPRODUCTION  COST  BASIS 

Assuming,  then,  that  all  things  considered  the  reproduction  cost  method 
offers  the  most  satisfactory  vehicle  for  obtaining  manufacturing  plant  val- 
ues, it  only  remains  to  derive  a  simple  and  efficient  method  of  appraisement. 
The  following  plan  conforms  closely  with  the  methods  usually  adopted  in 
public  utility  work,  and  at  the  same  time  is  designed  to  meet  the  special 
requirements  of  manufacturing  plant  appraisements. 

The  appraisal  should  be  divided  into  two  general  divisions ;  the  appraise- 
ment of : 

Physical  Assets. 

Collateral  Construction  Costs. 

Physical  assets,  as  the  name  suggests,  comprise  the  portion  of  the  prop- 
erty that  can  be  actually  inventoried  or  inspected — the  land,  buildings,  ma- 
chinery, tools  and  miscellaneous  equipment. 

Collateral  construction  costs  consist  of  those  closely  allied  expenditures 
that  are  inevitably  incurred  in  the  construction  of  a  manufacturing  plant 
and  which  are  in  reality  a  part  of  the  cost  of  the  actual  physical  property, 
but  which  for  obvious  reasons  cannot  be  included  in  the  unit  costs.  This 
division  includes  the  items :  Engineering  and  General  Supervision  during 
Construction ;  General  and  Legal  Expense  during  Construction ;  Taxes  and 
Insurance  during  Construction  and  Interest  on  Investment  during  Con- 
struction. 

PHYSICAL  ASSETS 

It  is  with  the  appraisal  of  the  physical  assets  that  we  are  principally 
concerned  at  present,  as  the  determination  of  their  value  involves  the  in- 

105 


ventory,  the  preparation  of  the  unit  costs,  and  the  determination  of  the 
accrued  depreciation.    The  physical  assets  may  be  subdivided  into: 

Land  and  Buildings. 

Production  Machinery  and  Equipment. 

Power  Machinery  and  Equipment. 

Belting  and  Shafting. 

Shop  Furniture  and  Fixtures. 

General  Office  Furniture  and  Fixtures. 

Stores  and  Supplies. 

Tools  and  Tool  Equipment. 

Appraisement  of  both  land  and  buildings  should  be  made  by  compe- 
tent specialists  who  are  thoroughly  familiar  with  local  conditions;  and 
should  be  subsequently  verified  by  the  engineer  in  charge  of  the  appraise- 
ment. This  verification  may  be  effected  by  comparison  with  other  similarly 
located  and  similarly  constructed  properties  in  the  neighborhood  of  the 
plant  under  consideration. 

Reproduction  cost  and  the  present  value  of  the  land  will,  of  course,  be 
identical.  The  present  value  of  the  buildings  should  be  estimated  by  the 
specialist  who  determines  the  reproduction  cost — verified  by  the  appraisal 
engineer. 

Production  machinery  is  the  machinery  actually  used  in  turning  out 
the  product  or  products  manufactured  by  the  plant  under  consideration. 
For  the  convenience  of  the  manufacturer  in  future  analysis  of  production 
costs,  the  production  machinery  should  be  segregated  from  the  machinery 
used  to  generate  the  plant's  motive  power. 

Production  machinery  and  equipment  may  be  subdivided  into : 

Machinery  Proper  (such  as  lathes,  drill  presses,  etc.). 
Electrical  Equipment  (motors,  rheostats,  etc.,  used  in  driving  indi- 
vidual machines) . 

Accessory  Parts  (lathe-chucks,  jigs  and  fixtures). 

The  inventory  of  the  production  machinery  can  be  effected  in  a  reason- 
ably short  time  by  the  following  method :  Notify  the  foreman  in  charge  of 
each  department  of  the  purpose  of  the  inspection,  advising  the  probable 
time  of  arrival  of  the  field  inspectors,  and  requesting  that  each  machine 
operator  arrange  the  accessory  parts  so  that  they  will  be  readily  accessible 
to  the  inspector.  The  inspector  should  note  the  location  (building  and  de- 
partment), identification  number,  description  and  present  condition  of  each 
machine,  its  electrical  equipment  and  accessory  parts. 

INVENTORY  OF  PRODUCTION  MACHINERY  AND  EQUIPMENT 

Forms  of  this  nature,  of  course,  will  have  to  be  varied  to  meet  the  indi- 
vidual requirements  of  every  plant,  and  can  best  be  designed  by  the  ap- 
praisal engineer  after  a  preliminary  survey  of  the  requirements  of  the  case 
in  hand. 

Power  Machinery  and  Equipment. 

This  includes : 
Boilers. 

Engines,  or  Turbines,  and  Accessories. 

Generators  and  other  Electrical  Equipment  (exclusive  of  individ- 
ual motor  drives). 

The  field  inspector  should  note  the  make,  type,  description  and  condi- 
tion of  each  unit,  together  with  a  general  list  of  the  accessory  equipment. 

106 


Belting  and  Shafting.  Main  shafts  and  counter  shafts,  together  with 
their  equipment  of  pulleys  and  belts,  can  usually  be  inventoried  from  the 
floor  using  cloth  tape  to  obtain  shaft  lengths.  An  experienced  inspector 
can  often  obtain  pulley  and  shaft  diameters  and  belt  dimensions  with  an 
astonishing  degree  of  accuracy  without  making  actual  measurements.  The 
general  condition  of  belting  and  shafting  should  be  noted,  but  no  attempt 
made  to  condition  each  item  individually. 

Furniture  and  Fixtures,  Tools  and  Tool  Equipment,  and  Stores  and 
Supplies  are  usually  the  bugbear  of  manufacturing  plant  appraisers.  The 
large  quantities  of  small  items  involved  render  a  detailed  inventory  ex- 
ceedingly tedious  and  lengthy,  and  the  relative  value  of  the  individual  items 
is  comparatively  smaU.  Most  manufacturing  concerns  have  reasonably  ac- 
curate inventories  of  these  items,  carefully  checked  at  least  once  a  year. 
These  inventories  should  be  reviewed  by  the  appraisal  engineer,  who  should 
check  them  in  detail  in  spots  to  ascertain  their  general  accuracy,  and,  if 
found  reliable,  incorporate  them  into  the  inventoiy. 

Determination  of  Present  Value.  The  determination  of  the  present,  or 
depreciated,  value  is  primarily  an  engineering  problem.  The  actual  com- 
putation of  the  present  value  of  a  given  machine  by  the  application  ot  a 
predetermined  condition  percentage  to  the  reproduction  cost  is  simple 
enough,  but  the  derivation  of  the  condition  percentage  involves  a  careful 
study  of  depreciation  and  the  functional  factors  of  average  life,  scrap 
value,  etc. 

Perhaps  the  simplest  way  to  gain  an  understanding  of  the  real  signifi- 
cance of  present  value  is  to  assume  a  reproduction  cost  on  a  given  machine 
and  briefly  outline  the  various  steps  in  the  determination  of  value  as  of  the 
date  of  appraisal. 

Assume  the  reproduction  cost  of  a  machine  to  be  $1000  and  that  it  con- 
tains 1000  pounds  of  copper  and  5000  pounds  of  iron.  Assume  further  that 
machines  of  the  type  under  consideration  have  been  found  by  experience  to 
have  an  average  life  of  20  years,  and  that  this  particular  machine  has  been 
in  service  for  10  years  at  the  date  of  the  appraisal.  The  value  of  the  base 
metals,  at  16  cents  copper  and  4  cents  iron,  is  (1000x16  cents)  plus  (500Ux 
4  cents) ,  or  $360.  If  the  base  metal  prices  are  about  the  same  10  years 
hence— after  the  machine  has  passed  its  20  years  of  useful  life— and  if  the 
cost  of  dismantling  the  machine  and  preparing  it  for  disposal  is  assumed 
to  be  $40,  the  machine  would  still  have  a  value  of  $360  less  $40,  or  $d2U. 
The  depreciable  or  wearing  value  of  the  machine  is  then  $1000  less  $320, 
or  $680.  If  depreciation  due  to  natural  causes— wear  and  tear  and  agc^- 
is  assumed  to  take  place  at  a  uniform  annual  rate,  one-twentieth  of  $680, 
or  $34,  should  be  deducted  from  the  value  of  the  machine  each  year  and 
added  to  the  depreciation  reserve  for  replacing  this  item  of  plant  when  it 
is  retired  from  service.  The  accumulated  depreciation  to  date  on  this  basis 
is  10x$34  or  $340,  and  the  present  value,  $1000  less  $340,  or  $660,  is  66  per 
cent  of  the  reproduction  cost. 

Present  value  computed  in  this  manner  should  be  modified  according 
to  the  actual  present  condition  of  the  machine  as  found  by  the  field  in- 
spector If  the  machine  is  found  in  unusually  good  condition  and  evi- 
dences a  useful  life  of  more  than  20  years,  the  present  value  as  determined 
by  the  above  method  should  be  correspondingly  increased. 


DETERMINATION    OF    COLLATERAL    CONSTRUCTION    COSTS 

Collateral  construction  costs,  as  stated  before,  constitute  the  group  of 
costs  inevitablv  incurred  prior  to  and  during  the  construction  of  a  man- 
ufacturing property,  and  are  so  closely  allied  to  the  cost  of  the  actual 

107 


physical  property  as  to  warrant  their  inclusion  as  a  part  of  the  total  phys- 
ical value.  There  are  obvious  reasons  why  manufacturers  are  not  always 
eager  to  have  the  value  of  the  collateral  costs  included  in  an  appraisement 
of  their  physical  properties.  In  the  determination  of  value  for  purposes 
of  sale  or  reorganization,  however,  both  collateral  costs  and  intangible  values 
usually  play  a  very  important  part. 

The  four  elements  of  collateral  cost — engineering  and  general  super- 
vision during  construction,  legal  and  general  expense,  taxes  and  insurance 
during  construction,  and  interest  on  investment  during  construction — may 
either  be  estimated  on  a  percentage  basis  or  computed  (perhaps  a  little 
more  accurately)  by  assuming  the  conditions  actually  existing  at  the  time 
of  the  original  plant  construction.  As  an  illustration:  In  computing  the 
item,  engineering  and  general  supervision,  a  theoretical  organization  of 
sufficient  size  to  plan  and  construct  the  plant  may  be  assumed  and  a 
reasonably  accurate  estimate  made  of  the  cost  of  such  an  organization. 
However,  in  actual  practice  it  is  generally  found  that  the  items  of  collateral 
cost  can  be  pretty  accurately  estimated  by  experienced  engineers  on  a  per- 
centage basis,  that  is,  by  applying  predetermined  percentages  derived  from 
experience  in  constructing  similar  manufacturing  properties. 

Present  value  of  the  collateral  construction  costs  may  be  determined 
by  assuming  depreciation  at  the  same  rate  as  the  total  of  the  physical  as- 
sets. This  assumption  is  unquestionably  warranted,  because  of  the  close 
relation  between  the  collateral  costs  and  the  physical  assets. 


108 


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109 


FORM  No.  28 


Depreciation  Schedule 


For  the  year 


PROPERTY 


BuiLDDfOS: 


Mill  Machinebt  and 
Equipment: 


I 


Quarry  Eouipment, 
No.  1: 


QxiARRT  Equipment, 
No.  2: 


Total'Chabge: 


MiU. 

Dwellings. 

General. 


Cost  or 
ValiM 


Total 


Raw  Department: 

Crushing  Machinery 
Diying  Machinery. 
Grinding  Machinery, 

Clinker  Burning  Dept; 
Kilns. 

Clinker  Grinding  Dept.: 
Crushing  Machinery. 
Grinding  Machinery 

Power: 

Boilers. 
Engines. 
Generators. 
Motors. 

Coal  Preparing: 

Dryers. 

Grinding  Machinery. 
Stock  Ho.  Machinery. 
Machine  and  B.  S.  Shop. 
Packing  House  Mach'y. 

Total 


Locomotives. 
Steam  Shovel. 
Tracks  and  Cars. 
Drills. 
Live  Stock. 

Total 


Locomotives. 
Steam  Shovel. 
Track  and  Cars. 
DriUs. 
Live  Stock. 

Total 


E«t 
Ufa 


Annual 
Charge 


Monthly 
Cbarga 


110 


Date  Due 


COLUMBIA  UNIVERSITY  LIBRARIES 


II 


0044259280 


NEH 


/^5//  0/0/7 


MAR  2  81994 


DEC  4 


1928 


END  OF 
TITLE 


